Given the current rental crisis across many parts of the country, The Australian Housing and Urban Research Institute (AHURI) has released a timely new report that profiles residential property landlords: who they are, who buys rental properties and who sells them, and how long they hold onto their investments.
The study, ‘Modelling landlord behaviour and its impact on rental affordability: Insights across two decades’ covers 2001-2021 and includes recommendations for government policy, which we’ll get to later.
Here are they key findings of the report:
1. More people are residential property landlords than ever before.
In 2021, 2.2 million Australians were landlords, accounting for about 8.7% of the population. That’s up from 6.8% two decades ago.
2. Most rental properties are sold within a short period of time.
50% of rental properties are sold within two years and the average holding period is four years. About 28% of rental properties are retained beyond 20 years.
3. Buyers of rental properties are generally younger.
Many buyers are aged between 25 and 34. The typically profile of a buyer is also that they’re married, employed, have post-school education qualifications, higher incomes, and lower personal mortgage burdens, relative to outright owning.
Those who retain their rental properties for longer tend to be in stronger economic positions with full-time employment and higher incomes.
4. Landlords sell rental properties due to life transitions or financial difficulty.
The odds of selling a rental investment property in the short-term are raised among pre-retirement landlords aged 45-54 years, by marital separation, unemployment, the absence of post-school qualifications, lower incomes, and personal mortgage burdens.
5. People living in well-off areas are more likely to buy a rental investment property, but they’re also more likely to sell the property in the short-term.
6. Investment property purchases increase when economic conditions are strong.
(Unsurprising)
7. Negative gearing discourages the sale of rental investment properties and increases the average holding period for rental investments.
All things being equal, negative gearing provides significant incentives for landlords to hold onto properties. Being negatively geared reduces the odds of selling over time by nearly 20%.
If negative gearing was removed, it would increase the after-tax cost of holding a rental property and reduce the average hold period for rental investments. A one percentage point increase in the cost for holding rental properties raises the odds of selling over time by 8.9%.
8. Cutting the capital gains discount would reduce the supply of rental properties and push up rents.
The study did simulated models halving the CGT discount from 50% to 25% over the period 2001-2021, and found that landlord costs would increase, as would the chance that high income landlords sell their rental investment properties. It also found that average rents would have risen slightly, and rental cost burdens would have increased across all income groups.
Policy recommendations
While the report’s findings are enlightening, its policy recommendations are less so. The three main recommendations are:
- Establishing programs that offer education on property investment retention. This is to support landlords’ efforts to retain property and promote the supply of long-term rental housing to the rental property market.
- Any tax reforms such as reducing negative gearing should be done gradually to reduce the impact on rental markets. That’s because negative gearing benefits encourage the retention of rental investment properties, and decreasing these benefits suddenly would lead to a jump in rental property sales and a drop of properties available to renters.
- Long-term freezes to rental increases aren’t the answer. That’s because it would discourage the buying and retaining of rental properties, thereby reducing the supply of housing into the private rental market.
While the report focuses on landlords and what can be done to encourage them to buy and hold onto properties, there are other things that are needed to increase the supply of housing into the rental market, including:
- Incentivising new developments.
Governments can offer incentives such as reduced development costs and tax breaks to encourage builders to construct more rental properties.
- Reducing planning red tape.
There needs to be faster approvals for developers to help speed up the building of more rental homes.
- Increase institutional investment in the rental market.
Make it more attractive for institutional investors to enter the rental market by giving them tax incentives and promoting long-term leases.
- Encourage older people to downsize.
Reduce stamp duty and other impediments to downsizing. This can increase the supply of larger properties for families.
The AHIRU study provides valuable insights into landlords and some clues about how to fix the rental property market. These issues have been neglected at this Federal Election, which has focused almost exclusively on home buyers over renters. As houses become ever more unaffordable, forcing more people into renting, I suspect the rental market will become a more visible issue in future elections.
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How much time have you spent reading about Trump and tariffs over the past two months? And how much of that time has been useful for your investing? If you're like me, the answers are: a lot, and zero. In my article this week, I urge investors to ignore Trump and instead focus on the time-tested investing principles for building real wealth.
James Gruber
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Curated by James Gruber and Leisa Bell
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