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Lending restrictions have led to rental undersupply: PIPA

Restrictions that were brought in to curb investor lending in 2017 have led to a “critical undersupply” of rental properties in capital cities, according to the group.

The chairman of the Property Investment Professionals of Australia (PIPA) has suggested that rental market vacancies, particularly in smaller capital cities, are near all-time lows as a result of historic lending curbs, exacerbated by the COVID-19 pandemic.

PIPA chairman Peter Koulizos stated that a number of capital cities (excluding Sydney and Melbourne), as well as regional locations, currently had vacancy rates of less than 1 per cent – noting that this is well below what is considered to be “balanced” vacancy rates (3 per cent).

He highlighted recent SQM Research which found that Brisbane’s vacancy rate fell from 3.5 per cent in March 2017 to 1.5 per cent in March 2021, Adelaide’s rate had dropped from 1.7 per cent to 0.8 per cent in the same period, while Perth’s rates dropped from 5.0 per cent to 0.9 per cent. 

He added that the lack of stock had also seen the national asking rent increase, too, with rental prices for houses rising 15.9 per cent over the past year and asking rent for units having risen by 7.6 per cent over the same period.  


According to the PIPA chairman, part of the issue of undersupply – especially in regional areas – was due to more Australians moving to live in “lifestyle” areas outside of the cities. 

“Demand for rental properties in many regional locations – such as the Sunshine Coast in Queensland, the Central Coast of New South Wales, and the South West of Western Australia – is far outweighing supply, with rental prices skyrocketing over the past year,” he said.  

“This critical situation is forcing some renters to move further afield because they can no longer afford to live in a region that they have sometimes called home for decades.”

Mr Koulizos outlined that even the largest cities of Sydney and Melbourne were experiencing an “undersupply” of rental properties, despite people moving out of the inner-city areas and the loss of international students and overseas migrants due to COVID-19 border restrictions.

However, he added that a larger factor impacting the volume of rental properties on market was the fact that fewer investors had come into market as a result of lending restrictions that were brought into effect in March 2017, to curb rising levels of “riskier” interest-only lending.


“Investor activity dropped about 50 per cent from March 2017 to May 2020 because of the lending restrictions that were applied carte blanche to investors around the nation four years ago,” he said.  

“Back then, the restrictions came into effect because of the strong property price growth in Sydney, but investors everywhere were also blocked from securing finance even in markets with benign market conditions at the time, such as Perth, Adelaide and Brisbane.” 

While investor lending has started to recover (recent data from the Australian Bureau of Statistics shows that lending to investors was 54.3 per cent higher in March 2021 than March 2020, and accounted for more than half of the rise in housing loan commitments in March 2021), Mr Koulizos said it was “imperative” that policymakers “don’t make the same mistake again” as investor activity was still “well below” what is needed to improve the supply of rental properties around the nation.  

“Unfortunately, the critical undersupply of rental properties is not a situation that will change overnight – just like it wasn’t a situation that happened over a short period of time either,” he said.  

“It is the industry’s belief that market cycles need to be allowed to run their course without any type of outside intervention because they will always move through their peaks and troughs of their own accord. 

“Instigating policies to solve a supposed short-term problem can have long-term ramifications, which is the drastic situation that tens of thousands of tenants are now experiencing.”

While the PIPA chairman issued the warning, the deputy chair of APRA, John Lonsdale, told the COBA 2021 CEO & Directors Forum last week that, “in aggregate, we are not seeing a return to higher-risk lending, particularly in areas where [APRA has] intervened in the past, such as investor and interest-only loans”.

Mr Lonsdale added: “However, it is important that standards are maintained, monitored and tested. Recently, we wrote to the 14 largest ADIs requesting more detailed data on their lending portfolios, and seeking assurances from boards regarding lending standards. 

“All boards should be closely monitoring their lending standards, comfortable with their risk appetite and testing whether serviceability policies used to assess borrowers remain prudent in an environment of extremely low interest rates.”

[Related: Investor loan growth doubled in March: APRA]

Lending restrictions have led to rental undersupply: PIPA
Lending restrictions have led to rental undersupply: PIPA

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Annie Kane

Annie Kane is the editor of The Adviser and Mortgage Business.

As well as writing about the Australian broking industry, the mortgage market, financial regulation, fintechs and the wider lending landscape – Annie is also the host of the Elite Broker and In Focus podcasts and The Adviser Live webcasts. 

Contact Annie at: This email address is being protected from spambots. You need JavaScript enabled to view it.

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