The Rental Crisis and the Need for Thoughtful Reform
The rental crisis continues to dominate headlines, with demand for properties far exceeding supply in many areas. Investors are a cornerstone of this market, providing around 85% of rental housing across the country. Yet, they’re highly sensitive to policy shifts. A heavy-handed approach to reform could shrink supply further, making it harder for tenants to find affordable homes. Striking the right balance is essential to support both renters and the investors who keep the market afloat.
Lessons from Legislative Changes: Western Australia and Victoria
Recent examples from Western Australia and Victoria highlight how legislative changes can ripple through the rental market. In WA, the COVID rental legislation of 2020-21—introduced after a prolonged market downturn with declining rents and high vacancies—proved deeply unpopular with investors. Combined with potential changes to the Residential Tenancies Act, it triggered a significant investor exodus. The result? A nearly 9% drop in rental supply, equating to 20,000 fewer properties, which fueled this crisis of recent years.
Victoria tells a similar story. Reduced land tax thresholds under the COVID debt levy, paired with strict landlord regulations and high compliance demands, have taken a toll. The Homes Victoria Rental Report for September 2024 shows a 3.6% decline in active bonds—nearly 25,000 properties—between September 2023 and 2024. These cases demonstrate that abrupt or overly restrictive policies can shrink rental availability, with real consequences for tenants.
Investor Sentiment: What the Data Says
Investors aren’t just reacting—they’re sending a clear message. A recent REIWA housing survey found that 83% of respondents would consider selling their investment properties if property taxes changed, while 74% said the same about legislative shifts. On the flip side, 82% noted that tax changes would deter them from investing, and 62% cited legislation as a barrier to entry. Real-world examples back this up: one investor sold a tenanted property after their land tax jumped from $12,500 to $28,000 in three years, while another offloaded two properties due to “over-governance.” These figures and stories underline how pivotal policy stability is to investor confidence.
The Vital Role of Investors
Despite occasional criticism, investors provide an essential service. According to ATO data, 71% own just one rental property, and 19% own two—hardly the image of sprawling property moguls. With private investors supplying the vast majority of rental homes, we rely on them to meet demand. Until alternative solutions emerge, policies must encourage both existing investors to stay and new ones to join the market.
Signs of Recovery in WA: The Power of Supply
There’s some good news in Western Australia, where the rental market is showing signs of recovery. This improvement stems from an increase in new supply, driven by WA’s relatively affordable housing and strong rental yields—factors attracting investors, especially from the Eastern States. A more moderate legislative environment has also helped rebuild confidence. But with another review of the Residential Tenancies Act looming later this year or early next, complacency isn’t an option. WA’s population is growing, and rental supply hasn’t yet returned to its peak. Investors have made it clear they’ll exit if policies tip the scales too far.
Looking Ahead: A Call for Caution
As the Federal election nears, political parties must tread carefully with proposals around tax settings or rent controls. The stakes are high for rental markets already under strain nationwide. At the state level, governments like WA’s need to learn from past missteps and prioritize stability in upcoming reforms. Poorly designed changes could undo recent progress and plunge us back into crisis territory.
Our Commitment to You
At Holdsworth Real Estate, we’re dedicated to keeping our clients and community informed about the forces shaping the real estate market. The rental crisis is complex, but one thing is clear: balanced, stable policies are the key to supporting investors, boosting supply, and ensuring tenants have options. We’ll continue to monitor these developments and advocate for a market that works for everyone. Stay tuned for more updates as the election and policy landscape evolve!