Victorian rent reforms could add to investor uncertainty: CoreLogic

The Andrews government announced on the weekend (22 July) that it was considering imposing a limit on the amount of rent increases landlords can make to once every two years as well as a cap on rent increases.

Speaking to Mortgage Business after the announcement, CoreLogic research director Tim Lawless said these potential changes follow an array of other factors that have placed additional holding costs on investors.

“The cost of paying down a mortgage has already increased by more than $1,000 a month for an investor with $500,000 of debt, depreciation benefits have been cut since 2017, land tax has increased and now we have more uncertainty related to rental income,” Mr Lawless said.

Mr Lawless added that there has been a “larger than average” portion of new listings coming to market that are investor-owned properties.

CoreLogic estimated around 36.1 per cent of new listings added to the market were investor-owned properties in June, which revealed a rise on the pre-COVID-19 average of 23.6 per cent.

However, this was still lower than the recent peak two years ago when investors made up 37.6 per cent of new listings.

Mr Lawless further stated that further uncertainty could act “to erode investor confidence leading to a larger portion of investors looking to sell”.

He added that the rise in investor-owned properties coming to market could potentially open opportunities for owner-occupier buyers, especially first home buyers.

“If these properties are purchased by owner-occupiers, theoretically, it should help to ease rental demand, although for many prospective buyers, the hurdles associated with obtaining finance amid high mortgage rates and a 3-percentage point serviceability buffer remain a key challenge,” Mr Lawless said.

The possible move by the Victorian government has been criticised by Real Estate Institute of Victoria (REIV) chief executive Quentin Kilian, who stated that the decision to cap rents will “cause untold damage to an already fragile rental market in Victoria”.

“What is needed is a measured approach, in consultation with industry, to incentivise sustained supply, not a knee-jerk reaction that smacks of political opportunism,” Mr Kilian said.

“In any supply chain, and the rental market is an essential supply chain, how can you dictate to a supplier that they cannot increase their costs under any circumstances but at the same time you continue to increase costs to the supplier?

“Yet, our political leaders seem to think this is a good idea to implement. The result will be an increased and sizeable departure of rental providers, leading to much less rental stock available, much higher prices and more homelessness.”

He added that if investors are unable to respond to cost movements, such as interest rate hikes, as a result of rent being capped and unable to move with the market, investors are “very likely to take their hard-earned savings elsewhere” as was already seen in response to land tax increase.

[RELATED: Qld rental reforms could cause investors to ‘walk’: REIQ]