Nicola McDougall

Startling new research shows hundreds of thousands of rental properties have been stripped from rental markets around the nation with investors offloading properties in Victoria and Queensland in particular – the states leading the war on private landlords.

The ninth annual Property Investor Sentiment Survey by peak industry body the Property Investment Professionals of Australia (PIPA) shows a surge in the sale of rental dwellings.

“A staggering 12.1% of investors sold one or more of their rental properties in the past 12 months around the nation,” PIPA chair Nicola McDougall said.

“About 43% of respondents in this year’s survey sold to an existing homeowner, while 30% sold to a first-home buyer. “Just 24% sold to another investor – down from 33% last year – which means the majority of those investment properties were likely removed from the rental market.”

Ms McDougall said last year’s survey found 16.7% of investors had sold at least one property in the previous two years. “Clearly, this would explain the undersupply of rental properties available for tenants around the nation,” she said.

“These results are yet another stark illustration of the mass exodus of private investors from the market.”

Using 2021 Census as the baseline of 2.477 million private rental dwellings in Australia, it is estimated that hundreds of thousands of rental properties were sold in the past three years, with the majority of these bought by existing homeowners or first-home buyers. 2 | Page

Investors deserting Victoria and Queensland

Drilling down into this year’s survey data, 24.8% of investors sold one or more properties in Melbourne over the past year, while 23.3% sold in Brisbane. Outside of the capitals, 16.4% sold in regional Queensland and 6.4% sold in regional Victoria. At a statewide level, 39.8% of investors sold one or more properties in Queensland over the past year, while 31.35% sold in Victoria – dwarfing the results in all other jurisdictions, according to the 2023 survey.

Ms McDougall said, like much of the country, Victoria and Queensland are in the grips of a rental crisis driven by a drastic undersupply of homes and significant demand from tenants.

“Those states are leading the charge with restrictive, unfair and inefficient legislative reforms that adversely impact property investors,” she said.

When asked to rank each state and territory from best to worst in terms of how positively they support property investors, respondents were in agreement about where they do – and don’t – feel encouraged to invest their money.

“Ranked from one to eight, one being the most accommodating and eight being the least, 57.4% scored Victoria an eight and 23.5% scored Queensland a seven. Just 3.1% of respondents scored Victoria a one and more scored Queensland in the upper quartile than the lower quartile,” Ms McDougall said.

“New South Wales is the place to invest, according to respondents, with 31.5% giving the state a score of one. Western Australia also did well, with 25.8% giving the state a one.”

Increasing taxes number one reason to sell

Ms McDougall said it remains clear investors are selling up or avoiding buying due to attacks by governments disguised as reform that make owning a rental difficult.

“At a time when tenants can least afford it, the people providing the vast majority of rental homes are selling up in droves,” she said.

Respondents cited the following as major reasons for selling over the past year: – Governments increasing or threatening to increase taxes, duties, and levies that make property a less attractive asset to hold (47%) – Changing tenancy legislation (43%) – Talk of rental freezes (34.6%) – Rental increase limits or caps (27.7%)

Tellingly, these reform-related stressors were cited as selling reasons disproportionately to rising interest rates and higher loan repayment costs (40.1%), negative cash flow due to higher mortgage costs (23.2%), a need to reduce total borrowings (33.1%), or offloading an underperforming asset (18.8%). 3 | Page

Brisbane-based property investor Merwyn Machado dumped one of his Brisbane investment properties last year when changing laws and soaring costs became too much.

“It didn’t make sense to be negatively geared and cop rising land taxes and council rates again and again,” Mr Machado said.

“Plus, the Queensland Government seems determined to try to ram through legislation that prevents landlords from looking after their property. I still have two investments in Brisbane, but I’m wondering why given the different ways the government and council are slugging me with taxes.”

More rental pain on the horizon

Unfortunately, in another sign of more pressure to come for tenants, the survey found 38% of investors feel it’s likely they will sell within the next year for myriad reasons, a staggering increase from the 19.2% in last year’s survey, Ms McDougall said.

“Again, it’s not a mystery why so many investors are planning to exit the market. Should governments further increase or introduce new taxes and compliance costs, 47.2% of respondents said they would be forced to increase rents.”

In recent times, Victoria has rolled out a $5 billion land tax hike and mooted caps on rental price increases or a rent freeze, while Queensland implemented, and then abandoned, a bizarre land tax grab last year, and introduced capped rent increases with retrospective application this year.

“Both states continue to talk about further punitive rule changes being on the agenda, which strips away surety from investors and makes owning a rental in Victoria and Queensland highly unattractive,” Ms McDougall said.

A core characteristic of repeated attacks on investors in recent years has been to paint property investors as greedy and opportunistic, she said.

“It’s unfair and unhelpful, especially given our research shows 92% of investors are grappling with higher holding costs because of interest rates, higher mortgages, and inflation.

“Despite that, 55% of investors said they were passing on just 10% or less of these higher costs to their tenants. Another 26.9% reported passing on 11% to 25% of extra expenses in the form of rent increases.”

This year’s PIPA Property Investor Sentiment Survey heard the views of 1,724 investors during the month of August – a record response.

PIPA’s membership base includes qualified property investment advisers, as well as a range of professionals whose business operations form part of the property investment process. These include financial planners, property buyers and advocates, accountants, mortgage brokers, real estate agents, conveyancers, depreciation specialists, lenders, and developers.

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Ben Kinglsey

The Victorian Government’s new investor land tax grab – announced in its State Budget yesterday – will hurt aspirational and hardworking property owners the most, according to the Property Investment Professionals of Australia (PIPA) and the Property Investors Council of Australia (PICA).

Analysis of the new policy has found that a Victorian investor will land holdings worth $1 million will be slugged about $2000 in extra land tax per year – or about $20,000 over the next decade – however, the tax will continue to increase along with land values throughout that time, so the cost to investors will likely be much higher.

PICA Chair Ben Kingsley said the policy would result in hardworking Victorians paying for the government’s incompetence for decades. “This is what happens when you have so much debt as well as continued economic mismanagement and self-serving governance,” Mr Kingsley said. “Victorians will be paying for the government’s incompetence for not just years, but for decades. “It’s a classic case of which policy is going to cause the least amount of political damage, so, they go after the aspiring and hardworking Australian, but aspiration in Victoria is officially dead under the Labor Government.” PIPA Chair Nicola McDougall said the new land tax grab appeared to be modelled on the Queensland Government’s similar failed policy last year.

“It does seem like the Victorian Government has taken an illogical page out of the Queensland’s Government’s ill-fated and investor-focused land tax playbook from last year, and we all know how that worked out for them,” Ms McDougall said.

“This absurd policy will no doubt lead to the exodus of investors in Victoria who are already struggling with significantly higher mortgage repayments that dwarf any increases in rent over the past year.”

Mr Kingsley said investors will desert Victoria in droves – just as they did in Queensland last year – with renters set to pay higher rents because of the policy folly.

“Victoria has the highest stamp duty of any state and territory in the country, so, this policy is like rubbing salt into a wound,” Mr Kingsley said. “Anyone looking to buy property in Victoria will look elsewhere, because this policy says that Victoria is closed for business. “Borderless investors will simply shop elsewhere where they are not being slugged by sky-high stamp duty and land tax, which will have a hugely detrimental impact on rental supply.” Ms McDougall said it was illogical that any State Government would implement such a policy during a prolonged critical undersupply of rental properties.

“It beggars’ belief that at a time of record low vacancy rates, rising rents, and increasing overseas migration – many of whom will initially choose to live in Melbourne but may find nowhere to rent – that the Victorian Government would even consider implementing such a ridiculous policy,” Ms McDougall said. “This is yet another example of politicians having no understanding of how bad policy impacts investor behaviour, especially those aspirational and hardworking property owners who are set to be slugged the most by this latest financial impost.”

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Nicola McDougall

Years of knee-jerk property policies and legislation created the current rental crisis, according to the Property Investment Professionals of Australia (PIPA).

At the 2023 PIPA Brisbane breakfast seminar on Wednesday last week, an expert panel outlined potential solutions to the critical rental undersupply, but also explained some of the reasons how the rental crisis was created.

PIPA Chair Nicola McDougall said nearly a decade of knee-jerk policies in the property investment space in particular had reduced the volume of investors and ultimately the supply of rental properties across the nation.

“Since late 2014, we have seen investor-targeted APRA lending restrictions come and go; negative gearing and Capital Gains Tax laws continually on the chopping block; emergency tenancy laws enacted during the pandemic; and mooted rental caps now being the latest attack on investors,” Ms McDougall said. “Given property investment should be a long-term strategy, no wonder hundreds of thousands of investors are offloading their properties in reaction to the head-spinning array of financial and legislative imposts that are forever levelled at them.”

REIQ CEO Antonia Mercorella, CoreLogic Asia-Pacific Executive Research Director Tim Lawless, and financial and housing market expert Pete Wargent were the expert panellists who presented potential solutions to the current southeast rental crisis at the 2023 PIPA Brisbane breakfast seminar on Wednesday.

Ms Mercorella said legislative issues were continuing to have an impact on the psyche of investors to the detriment of rental supply.

“Investors are becoming increasingly frustrated with legislative intervention that effectively handcuffs them and limits what they can and can’t do in a way that we don’t necessarily see in any other asset class,” Ms Mercorella said.

“You only have to look at the number of properties that have been transferred from the long term permanent rental market into short-term letting, as well as the volume that have been sold to see their frustration in action.”

Mr Wargent said while there is currently a rental shortage that is pushing rents higher that situation is invariably followed by a glut.

“I know it doesn’t feel like it today, but it wasn’t so many years ago here in Brisbane that there were units going up all over the place and rents were falling,” Mr Wargent said.

“There’s billions and billions of dollars of capital being raised in the bill to rent sector, so, we’re likely going to get a glut in three or four years’ time.

“The rental shortage will be solved in time, so, it’s more a question of what do you want the rental markets to look like?”

Likewise, Mr Lawless said long term trends in the rental market were vastly different to the double-digit annual increases of the past two years, with rents typically increasing at around three per cent annually.

“Over the short to medium term the rental supply outlook is looking pretty glum. From a new dwellings’ perspective, approvals are at their lowest level in more than a decade. Across the medium to high density sector, dwelling approvals have mostly been below the decade average since 2018,” he said.

“It’s encouraging to see more funding for social and community housing in the wings but, from a federal funding perspective, these aren’t budgeted until 2024 and you would expect that even then it will take a couple of years for this supply to be completed.

“Rental supply from private sector investment is still going backwards after the number of investment home loans has consistently declined since early 2022.”

CoreLogic data shows that average monthly rental prices have increased by $290 over the past year, but repayments on a $500,000 mortgage have increased by a bit over $800 per month.

PIPA Chair Nicola McDougall said the number of investors active in the market had fallen to the lowest level since August 2020, according to the latest ABS Lending Indicators.

“Higher interest rates, as well as the three percentage point servicing buffer, is preventing many investors from transacting, which is reducing the supply of rental properties even further,” she said.

“The last time the number of investor loans was this low was in the early months of the pandemic when most of us were in lockdown and everyone was fearful of what lay ahead. That is an extraordinary comparison to make, and situation to be in again.”

At the breakfast, Ms Mercorella said it was vital that legislation and regulatory frameworks worked in all markets and not just for specific moments in time.

“We know what a healthy vacancy rate looks like – it’s between 2.6 per cent to 3.5 per cent – and we are sitting well below one per cent across most parts of Queensland, so, we are worlds away from a healthy market,” Ms Mercorella said.

“But governments must accept responsibility for the position we find ourselves in here in Queensland. There are around 640,000 residential tenancies and the vast majority of these are being provided by private investors, who do the heavy lifting when it comes to housing Queenslanders.

“The more you legislate, the more you’re just going to drive people away from permanent rental markets and either into short-term letting or into selling.”

Mr Wargent said property under- and over-supplies are always remedied over time as more supply is constructed and consumer behaviour changes.

“When rents rise too quickly, people start pushing back. They either move to a different city, they stay at home, they live with their parents for longer, we see average household sizes increasing and more people flat sharing,” Mr Wargent said.

“If you want to encourage investment in any sector – it doesn’t matter if it’s energy, property, or whatever – you need a stable regulatory framework to give people confidence to invest in. Knee-jerk reactions or price caps never work in economics traditionally.

“A good starting point needs to be removing the current lending assessment buffer. That was an extraordinary measure for an extraordinary time and if people want to borrow, then let them borrow.

“There’s no point in stopping people from borrowing if they want to supply the market.”

At the breakfast, Mr Lawless said that new supply and increased investor activity were both on the horizon, but there was no quick fix to the current rental crisis.

“Once there’s some stability in the market, we are likely to see more investment, however, governments should also have a bigger stake in rental home ownership,” Mr Lawless said.

“If you look at dwelling approvals historically, back in the ‘70s and ‘80s, governments were building about 10 per cent to 15 per cent of housing stock. Over the past 15 or 20 years, that’s consistently been around two per cent to three per cent.

“So, they’re really passed the chalice of rental housing responsibility to the private sector and now they’re trying to regulate the private sector – I think unfairly.

“The biggest thing they can do is to take a bigger stake of home ownership – which could be in the form of social and community housing – but there’s no immediacy in delivering that to the market when it’s so severely needed at the moment.”

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Nicola McDougall

New research has highlighted the disparity between property investor genders with only 27 per cent of women indicating they own investment property.

The 2022 PIPA Annual Investor Sentiment Survey asked survey respondents for their gender for the first time in its eight-year history which produced the telling statistic.

The co-authors of the 2022 Australian personal finance and investment business book of the year, The Female Investor: Creating Wealth, Security & Freedom Through Property, Nicola McDougall and Kate Hill, said lower rates of female property investment was another financial headwind women faced.

“Throughout their working lives, women have to navigate the gender pay gap, much lower superannuation balances, and poorer financial outcomes post-divorce – all of which will mean they will have inferior financial outcomes throughout their lives and in retirement,” Adviseable Property Buyer Ms Hill said.

“The fact that women only represent a smidge over a quarter of all property investors is another factor that shows women are just not on the same financial footing as men in this country.”

Ms McDougall, who is also the chair of PIPA, said many women may have been nervous about purchasing a property, either as a home or an investment, in years gone by, but there is plenty of expert advice and guidance available these days to assist them.

“Society has changed significantly since the days when women stayed at home to look after their children while their husbands were the main breadwinners,” Ms McDougall said.

“However, more and more research and lived experiences are proving that the financial outcomes for women are generally going to be poorer than men – and especially for those who separate or divorce.”

Ms Hill said ample opportunities currently exist for women to buy a home or investment property to shore up their financial futures.

“Market conditions are highly supportive at present given softer property prices and lower buyer demand,” she said.

“Prospective property owners are also in the box seat from a lending perspective at the moment, too.

“The next six months will deliver ideal market conditions for any woman who wants to improve their financial situation via strategic property ownership.”

Ms McDougall said the difference that one or even two properties can make to a women’s financial independence throughout their lives should not be underestimated.

“I purchased three properties as a single woman and retained financial independence from my husband,” she said.

“This means that if our relationship ends, we can move on with our lives relatively seamlessly given we have financial independence from each other and are therefore unlikely to ever wind up in Family Court for months or even years on end.”

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Nicola McDougall

The inequality in superannuation balances as well as the entrenched gender pay gap means more women than men are likely to spend their retirement in poverty, according to government research.

Research from the Workplace Gender Equality Agency (WGEA) shows that more elderly women than men are living in poverty in Australia and are also more likely to re-enter the workforce following retirement, often due to financial constraints.

The research also shows that women are twice as likely as men to sell their house and move to lower-cost accommodation because of tight financial circumstances in retirement.

Author of The Female Investor – Creating Wealth, Security & Freedom Through Property, Nicola McDougall, said WGEA research continues to highlight the inequitable financial outcomes between genders in Australia.

“Many women are worried about their lack of superannuation and about having to work until they are 80 instead of retiring. In fact, many women are forced to re-enter the workforce in their twilight years because they simply can’t afford to live without doing so,” Ms McDougall said.

“About one in three Australian women retire with no super. Plus, women who do manage to save, may still wind up with less than half the retirement funds of their male counterparts.

“About 70 per cent of women also rely on the pension to financially survive in retirement – even though the superannuation scheme has been in place for decades now but it was not designed to accommodate women who leave the workforce to care for children, often during what would have been their peak income-earning years.”

Ms McDougall – who is also the Chair of the Property Investment Professionals of Australia – said one of the reasons for the imbalance in financial outcomes between genders is because the current superannuation framework does not account for common female experiences in the workplace.

“WGEA research shows that women have lower lifetime earnings and are more likely to work part-time, or in more casual forms of employment, as well as to take time out of the workforce for unpaid caring responsibilities. All of these factors affect a woman’s ability to save retirement savings,” Ms McDougall said.

“Likewise, the gender pay gap exists with women on average earning 77 per cent of men’s earnings, while women are much more likely to earn under $60,000 per year than men.”

In fact, according to the WGEA Australian Gender Equality Scorecard men are twice as likely to be highly paid than women:

• men are twice as likely as women to be in the top earnings quartile, earning $120,000 and above, while women are 50 per cent more likely than men to be in the bottom quartile, earning $60,000 and less
• over 85 per cent of Australian employers still pay men more than women on average
• women were earning, on average, about 77 per cent of men’s earnings in 2021.

Further WGEA research shows that the gender pay gap is at its widest for women aged between 35 to 54 years of age – with the peak gap occurring for women in their mid-40s.

“The gender pay gap starts to widen significantly when women are about 35, according to the research, because this is the decade when they are most likely to be out of the workforce caring for children,” Ms McDougall said.

“However, even when they return to work, the pay gap continues because their time out of the workforce means they have missed out on vital career promotions and progression and are therefore less likely to hold highly paid jobs than men.

“It’s important to recognise that this stage of life is also the most common age for divorce in this country, too, which adds further financial pressures on women in the lead-up to retirement.”

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