When people are safe and comfortable in their homes, it fosters a strong and unified community and a flourishing economy for all Australians. However, our housing market is facing a range of issues that are impacting the ability of many Australians to find a place to call home at all. Population growth, the need for more space, and smaller average household sizes, have long been driving housing demand and now, with the resumption of immigration and the return of foreign students, demand has accelerated, outstripping the availability of rental or purchase homes.
The market’s ability to keep up with this demand is being hindered by inefficient tax systems and misguided regulations that deter investment. This is a situation that must be dealt with urgently to ensure everyone has access to housing. The clearest sign of the lack of supply can be seen in the rental market. A massive shortage of properties has led to a rental crisis in most parts of the country.
More than 30% of Australian households rent, and the number of available rental properties has dropped drastically over the past five years and continues to decline. On the other side, demand for rentals is higher than ever before. Inquiries have grown by more than 8% last year and are projected to keep increasing due to the low volume of first-home buyers and a surge in foreign arrivals.
Currently, demand is 140% higher than pre-pandemic levels. The most accessible end of the market is being hit the hardest, with properties available to rent for under $400 per week now making up only 17.6% of the market. Rents have skyrocketed in some places, with 36.1% increases in Perth, 34.1% in Darwin, 25.7% in Adelaide, and 24.4% in Brisbane. Sydney and Melbourne’s growth has been more moderate, but prices are now rising rapidly with advertised rents in these cities increasing by around 10% over the past year.
To address the rental shortfall and homebuyer affordability, two things must be done. We must create new supply in a way that encourages investment instead of scaring it away, and we must find new ways to utilise our existing housing stock. ‘Mum and dad’ investors should be encouraged back into the market, and legislative and regulatory reform is necessary to make this happen. These investors make up more than 65% of rental properties in Australia and cannot be ignored. At the same time, APRA needs to review and abolish its policy that requires discriminatory mortgage pricing for investors, as research has shown that investor loans are no more risky than those of owner-occupiers.
For larger investors, more favourable tax settings are needed to make build-to-rent a more attractive asset class. In NSW, WA and Victoria, land tax discounts have been offered for these projects, but other states have yet to follow suit. Additionally, foreign investors in the BTR space face higher income tax levels and are subject to unfavourable GST treatment, making international institutional investment less attractive. On a broader scale, there needs to be a comprehensive review of the tax system, with a move away from stamp duty as it imposes a major barrier to investment and mobility, while preventing people from moving into homes that better suit their needs.
There are currently 12 million spare bedrooms in Australia, and making it more attractive for households to free this up would lead to better use of our housing stock. The federal government has taken the first steps to support new supply with the $10 billion Housing Australia Future Fund, and a variety of taskforces have been established across all levels of government to understand and address the problem. Meanwhile, some states have taken action to reduce reliance on stamp duty. Now is the time to continue this progress and review the tax system and legislative frameworks as they apply to property. APRA must eliminate penalties for investors and tenancy laws must be looked at to make sure they don’t discourage landlords. Making these changes is the only way to ensure a lasting supply that will meet the rapidly growing demand.