Victoria named worst state for renters by real estate bodies

It’s thanks to relentless onslaught of tenancy reforms that forced landlords to abandon the market and unleash a full-blown rental crisis.

Over 100 tenancy reforms within a span of two years has led to Victoria being named as the most unfavorable state for renters in the nation, according to the real estate bodies.

Citing the latest Australian Taxation Office (ATO) data which showed that the net average annual number of people with rental property incomes has fallen a staggering 55 per cent in five years across the nation, PICA chair Ben Kingsley said it’s clear the number of net individual investors isn’t keeping up with net rental demand.

Analysis of the ATO’s Individual Taxation Statistics for 2020–21 found that the average increase in net individual investors every year in the five years to 2015–16 was about 66,000 nationally.

But in the five years to 2020–21, this figure had fallen off a cliff to about 29,600 — including a negative result in 2019–20 when investor numbers actually fell by 333.

According to Mr Kingsley, the “constant attacks and financial impacts” on investors over the past five years in particular has pushed the country into a rental crisis, singling out Victoria as “the worst of the lot”.

Particularly, he strongly criticised the latest move by the state’s government to heavily consider rental caps in its desperate bid to gain support from the Greens for tax reforms.

“Never in my lifetime would I have thought that a government of the day could be that dumb to consider rental freezes, yet, the Victorian Labor government is sounding a very clear message to mum and dad property investors — telling them your money is not required in Victoria, even though it has one of the lowest rental vacancy rates in the country,” he said.

Mr Kingsley said that while most renters will think the measure is a “a welcome short-term relief” from the rental squeeze, the chronic shortage of rental properties in this state will remain for years and decades to come.

He warned this will ultimately cause severe economic harm to a state that is already challenged by what the expert described as “record levels of debt”.

“This will lead to higher rents for longer, as investors choose to invest their money in other states and territories where the suppliers of the majority of rental properties in this country are treated with more respect than they are in Victoria,” he cautioned.

The real estate bodies also pointed out that the state’s new land tax “set to slug mum and dad investors” will also cause investors to abandon the state’s rental market.

On 25 May, the state announced a new COVID-19 debt repayment plan that earned a shocked reaction from the real estate industry.

From 1 January 2024, the tax-free threshold for general land tax rates will temporarily decrease from $300,000 to $50,000. The family home will remain exempt from land tax.

Those who pay land tax will attract a temporary additional fixed charge starting at $500 for landholdings between $50,000 and $100,000. There will be a $975 fixed charge for landholdings above $100,000 and the tax rates will temporarily increase by 0.1 per cent for both general and trust taxpayers with holdings above $300,000 and $250,000, respectively.

The government will invest the funds in its Victorian Future Fund (VFF), introduced in last year’s budget, with the aim of neutralising the state’s accrued COVID-19 debt over a period of 10 years.

Following the announcement, Mr Kingsley said the policy is akin to the Victorian government asking individuals and entities to pay for its own financial mismanagement.

“This is what happens when you have so much debt as well as continued economic mismanagement and self-serving governance.

“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.”

Mr Kingsley warned the Victorian government against considering rent controls, which he said will “further decimate the state’s rental market”.

“We’ve had 12 interest rate increases and this proposed move by the Victorian Labor government will be the straw that breaks the backs of many property investors,” Mr Kingsley said.

“Not being able to recover some of these costs will mean some mum and dad investors will be forced to sell, and with other budding property investors snubbing Victoria because it’s too hard and too costly to hold properties, the story is going to be pretty dire for the state and for all renters living there.”

Mr Kingsley expressed concern that there is “now a real risk of Victoria’s economy becoming basket case” similar to the John Cain/Joan Kirner state Labor government of the late 80s and early 90s, which took nearly two decades to recover from.

“It’s clear we have a housing supply issue that’s only going to get more challenging with more immigration planned which will result in many overseas migrants choosing to settle in other states and territories because there will literally be nowhere available to rent in Victoria,” he said.

PIPA chair Nicola McDougall said investors had been selling up for years because for many, it’s just not worth the financial risks nor the constant requirements to fund state government coffers via higher taxes.

She said this had resulted in a critical undersupply of rental properties nationwide and triggered the ongoing rental crisis.

“PIPA has been warning for nearly a decade about the negative impacts of market intervention on rental markets, starting with the APRA lending restrictions that came into effect in 2015, and now a variety of rent caps or controls,” she said.

The real estate body’s Annual Property Investor Sentiment Survey 2022 showed almost one in five — or 19 per cent of — landlords across Australia are planning to divest at least one of their properties in 2023.

This sentiment has not dissipated among property investors, Ms McDougall said, stating the latest ATO stats showed investors are now abandoning the market.

“The ATO stats don’t lie, investors have already deserted markets around the nation — and especially in Victoria and Queensland — because they no longer have control of their assets.

“The negative annual result for investor numbers during the first year of the pandemic was the first time this had occurred since the GFC more than a decade before but is set to happen again sooner rather than later as investors sell up in droves,” she stated.