Property experts at National Australia Bank and Ray White have clarified that their analysis of Labor's tax reforms does not predict a 30% surge in rents, despite claims from critics. The 30% figure merely represents the theoretical rental increase needed to restore yields for new investors if property prices remained static, not a forecast of actual rent hikes.
How the 30% Figure Was Misinterpreted
Critics of the Albanese government's tax changes have claimed rents could climb by up to 30%, citing analysis from NAB and Ray White. However, both entities have since stated their models were misused. The analysis examined the reforms' effect on landlords' yields—post-tax, post-negative gearing income from an investment compared to its purchase cost—not rent predictions.
According to the experts, properties that previously appealed to investors primarily due to negative gearing benefits will either be purchased by owner-occupiers or fall in price until they provide a viable return for new investors. This is described as a healthy market adjustment when the distorting effect of negative gearing dissipates.
Market Forces, Not Landlord Wishes, Set Rents
Shadow treasurer Tim Wilson told News24 on Wednesday: "We've now had Ray White say … 'Yep, this all stacks up. Get ready, if you're a renter, to pay higher rents because of Anthony Albanese and Jim Chalmers.'"
However, independent property economist Cameron Kusher says rents are already near the maximum tenants are willing to pay. "Landlords can want to put up rents 30%, but who are they going to be able to find that can pay a 30% higher rent than they're already charging?" Kusher says. Renters' budgets are already strained by high inflation, falling real incomes, and recent rapid rent increases. Tenants facing heavy increases are likely to move into shared housing, relocate to more affordable areas, or, aided by recent property price falls in some areas, become owner-occupiers.
Real Rent Pressures and Forecasts
While the tax changes are unlikely to spark a 30% surge in rents, other pressures are pushing prices higher. According to Cotality, vacancy rates have fallen over the last year to a very tight 1.7%, compared to the typical 2.4% over the last decade. Kusher expects low vacancy rates could see advertised rents rise by up to 7.5% over the next year. With Cotality estimating the median rent at $705 a week, that would represent a $52 increase. He says cheaper areas in capital cities will likely see faster increases as rent hikes price tenants out of more expensive areas.
Concerns that tax changes will lead to fewer available rentals as investors hold off buying homes have been dismissed by economists including Saul Eslake, who point out that investors buying existing homes don't add a single new property to the market. Rather, they tend to outbid prospective buyers, forcing more people to remain renters. The tax changes include incentives to invest in new homes, which does add to supply.
Structural Issues Behind the Rental Crisis
The long-term rental crisis stems from a fundamental mismatch between surging demand and limited supply, exacerbated by a decades-long decline in home ownership. Demand is easing as net overseas migration falls, but government efforts to boost housing supply are yet to bear fruit. Housing advocates have called for more social and affordable housing to help low-income households struggling to compete in the tight rental market.
Tom Alves, acting managing director at the Australian Housing and Urban Research Institute, says the tax changes are addressing structural problems in the market, not causing rental stress. "One of the important things has been to remove some of that incentive for people to purchase homes as an investment, and therefore compete with would-be owner-occupiers and drive up the price of home purchases," says Alves. "It is a necessary structural change to achieve a longer term goal of arresting the decline in home ownership in Australia, and trying to turn that around."
