Riding out the storm of legislation

While tenants are struggling to secure accommodation at reasonable prices, regulators and lawmakers seem to be doing all they can to stymie the supply of available rentals by continually shifting the goal posts on property investors. Unfortunately, this has been doing nothing for landlord confidence, and the result is likely to be even less rental supply in the near future.

Despite this, I remain optimistic about what real estate can deliver investors in terms of financial security.

Political interference

While rental legislation falls within the purview of our states and territories, there have still been federal moves around taxation which challenge investor confidence. An ongoing program of tinkering with depreciation guidelines and claimable expenses, such as travel, has been an annoyance to many.

Then there’s the current Senate inquiry into the rental crisis. The cut-off for feedback has just passed, with many landlords and their supporting associations among those who put in a submission. Despite them being given the opportunity to comment, the terms of reference were pointedly geared towards tenant relief without suggesting any support for property owners.

Then there are the states and territories and their moves on tenancy reforms which are almost universally to the advantage of the tenant at the expense of the landlord.

Victoria is widely recognised as one of the most difficult jurisdictions for landlords with far-reaching legislative changes and a consultation process that’s biased heavily in the tenant’s favour.

Recent reports flag future changes in Victoria that may include a limit on rent increases to just once every two years. Perhaps the most disturbing are reports that Victorian Treasurer Tim Pallas expressed in a letter to the Greens that the state government was considering rent caps and additional taxes on owners of Airbnbs and vacant properties.

In addition, increased land tax imposed on property investors to help pay down the COVID-19 debt is doing little to instil confidence in the Victorian market.

Queensland’s now legislated Stage 1 rental reforms are set to come into effect on 1 September. This will include removing “without grounds” evictions, setting minimum housing standards and allowing renters to have pets. Queensland is also in the process of taking submissions on Stage 2 rental reforms, which will discuss multiple changes including tenants being allowed to modify the property.

NSW has already dipped its toe in the water with rental reforms, but the state is set to go further. Stakeholder submissions have now closed on additional proposed changes. Among the areas to be discussed will be removing “no grounds” evictions, rental bond portability, allowing pets and restricting background checks on tenants.

As you can see, landlords are being systematically used as cash machines and whipping posts for many tiers of government, so it’s little wonder confidence in the market has drained.

And it’s showing up in the numbers, too. The chart below from CoreLogic reveals that the number of investors listing their assets for sale has continued to rise and remains well above pre-COVID averages.

Reasons to breathe

First up, let me say that what’s underway at present beggars belief. In the simplest of terms, rental property supply is down and demand for shelter is up – both for now, and well into the future. Governments should be incentivising investment given Australia’s 2.2 million property investors supply around 85 per cent of all rental accommodation.

That said, I think there are other considerations landlords should take into account to help them feel more confident about their investment prospects.

Firstly, investors with a long-term outlook should view the current situation as a challenging period in what will be a long journey of ownership. History shows that property prices in most markets will rise substantially over two to three market cycles (i.e. 20-plus years). If you’re a hold-and-wait investor, don’t change your approach now.

I also think when markets are challenging, those with access to funds and good advice have the opportunity to secure high-quality assets.

In addition, while the rental freeze being expounded by the Greens sounds scary, the federal Labor party is staunchly opposed to it. The government has made it abundantly clear that freezing rents is a monumentally bad idea and it’s hoped that will feed through to the states.

The broader response to all these anti-investor moves also has me feeling optimistic. Property investors and their advisers have been energised and galvanised by all these proposals. There is no reliable evidence that any of the changes will improve the rental market for tenants in the long term.

In addition, the broader public appears to be falling firmly in favour of investors on this conversation. For example, go to any online story about rent freezes and 95 per cent of the comments will point out the disparity and idiocy of such a proposal. Australians are, at their hearts, aspirational. Even if they don’t own an investment property, many would like to.

The wash up is this – if you are a long-term investor with access to funds and an ability to ride out the tough times, then take heart. The next six to 12 months could deliver a wealth of opportunity to build your portfolio. Just be sure to use independent professional advice to make it a reality.

Mike Mortlock is the managing director of MCG Quantity Surveyors.