I have two hot takes and one speculative thought in response to a lot of fear mongering in the wake of the budget. If you disagree with them, please tell me where I have gone wrong in my logic.
- Increased investor costs cannot raise rents. If the rental property market is a true market, then the costs to the investor cannot raise rents as only supply and demand can determine the price. Raising the costs on the supply side should mean that we lose some investors whose properties are no longer financially viable. If landlords are able to pass on costs, then that means the market is not fair and is more like a monopoly than a market and should be heavily regulated.
- Investors selling doesn't increase rents. If the first point is correct and we see an investor sell off then I dont think there wil be a big impact. The total pool of housing and people looking for housing doesnt change if an investor sells. That house doesn't magically disappear, it gets bought, potentially by someone currently renting. Rental sock loses a property but the pool of renters also lose a family. Victoria seems to have confirmed this.
- An unintended consequence of the budget might be the creation of "renter suburbs" With negative gearing being restricted to new builds, property investors will be attracted to areas with a lot of new builds and away from established suburbs, potentially creating concentrated pockets of renters. We dont want the only place you can find a rental in Sydney to be The Ponds. This would be an overall bad thing for our cities and I hope this is a focus for state/local governments. NSW's transport orientated development program should help with this so I hope we see more zoning changes like that.
Increased investor costs can impact supply by fewer new investors choosing to list properties as rentals. But I think a lot of the hysteria on either side of the arguement isn't warrented yet. If housing prices dip somewhat, more renters may become owners and therefore reduce rental demand. Realistically this won't happen uniform across all housing markets and geographic areas. I suspect that metropolitan cities like Sydney and Melbourne attract both young people looking for work/study, and internationals on short term visas. These people are unlikely to be buyers regardless of housing prices, so the demand for rentals may remain high in such areas.
Again, I think this depends on the profile of renters in an area and the sorts of houses being sold / desired to be purchased. If investors start selling off apartments, but growing renter families want to move up into larger townhomes or houses, the impact on unit pricing may not be uniform increases or decreases across the market. If all of this is happening alongside an aggressive commitment to increase the number of housing units in cities, I'd reckon we'll see a disproportionate number of apartment units being introduced to the market, with a scarcity of larger lots. If that were to happen, apartments purchased now might face negative equity in the short term, whereas the larger lots could have the opposite trend.
Maybe, but this assumes infinite longevity to the tax changes. Taxation rules are meant to be blunt tools used to help shape the economy/infrastructure/opportunity in Australia. We need new housing units, so incentivising investment through tax benefits can help generate investor interest to fund this development. At the moment, tax benefits reward housing investment indiscriminately, and it puts growing families in direct competition with investors when looking to purchase an established home, sometimes trapping FHB in a rental cycle. This doesn't really benefit anyone but investors, so begs the question why the government should be encouraging it.
All that said, if the tax laws for new builds no longer become sensible (e.g. we no longer need to keep building new units), the tax laws can be updated.