Headlines claim rents in Australia will surge thanks to Labor\u2019s property tax reforms. Is there any proof?<\/p>\n
Critics have claimed property investors have no choice but to hike rents by 30% but the experts say their analysis has been misused.<\/p>\n
Here\u2019s what you need to know.<\/p>\n
Will rents rise as much as 30% in Australia?<\/p>\n
Not likely.<\/p>\n
There have been media reports that rents may rise by almost a third in response to Labor\u2019s tax changes, citing analysis from National Australia Bank and, separately, Ray White.<\/p>\n
The bank and property group have since clarified that their models are not, in fact, warnings of an Armageddon scenario for renters.<\/p>\n
Instead, both analysed the reforms\u2019 effect on landlords\u2019 yields, which are the post-tax, post-negative gearing income they get from an investment, compared to what it cost to buy.<\/p>\n
They have found property is now less attractive to new investors, who will not enjoy the same negative gearing benefits as those who purchased before the May budget reforms.<\/p>\n
The 30% figure merely represents the theoretical rental increase required to restore yields for new investors if property prices remained static.<\/p>\n
In reality, 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.<\/p>\n
This is what is supposed to happen in a healthy market when the distorting effect of negative gearing dissipates.<\/p>\n
Will landlords punish renters for tax changes?<\/p>\n
Critics suggesting new investors, without negative gearing benefits, will bump up prices to make their investment profitable.<\/p>\n
Tim Wilson, the shadow treasurer, told News24 on Wednesday: \u201cWe\u2019ve now had Ray White say \u2026 \u2018Yep, this all stacks up. Get ready, if you\u2019re a renter, to pay higher rents because of Anthony Albanese and Jim Chalmers.\u2019\u201d<\/p>\n
While a landlord\u2019s individual circumstances can influence what rent they chase, ultimately the market decides what price they get.<\/p>\n
Landlords will likely raise their rent if they can find tenants who will pay, regardless of tax settings, interest rates or other financial pressures.<\/p>\n
Sign up for the Breaking News Australia email<\/a><\/p>\n Cameron Kusher, an independent property economist, says rents are already near the maximum tenants are willing to pay.<\/p>\n \u201cLandlords 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\u2019re already charging?\u201d Kusher says.<\/p>\n Renters\u2019 budgets are already strained by high inflation, falling real incomes and recent rapid rent increases.<\/p>\n Tenants faced with heavy rent increases are likely to move into shared housing with friends or family, or move to more affordable areas. Others, aided by recent property price falls in some areas, may become owner-occupiers.<\/p>\n What will happen to rents?<\/p>\n While the tax changes are not likely to spark a 30% surge in rents, there are other pressures pushing prices higher.<\/p>\n In the last 10 years, 2.4% of rental homes have typically been vacant, according to Cotality. Vacancy rates have fallen over the last year to a very tight 1.7%.<\/p>\n Rent rise graph<\/a><\/p>\n Kusher expects low vacancy rates could see advertised rents rise by up to 7.5% over the next year. Cotality estimates the median rent is $705 a week, so that would represent a $52 increase.<\/p>\n He says cheaper areas in capital cities will likely see faster increases as rent hikes price tenants out of more expensive areas, forcing them to move.<\/p>\n There have been concerns raised that the tax changes will lead to even fewer available rentals as investors hold off buying homes<\/a>.<\/p>\n