More property investors needed urgently

Research by two groups that represent investors and professionals working in the property industry shows tens of thousands more property investors are needed in order to address the ongoing rental crisis in Australia.

The study found that, if the current crisis was to have been avoided, nearly 35,000 extra property investors would have been required over the past 5 years in order to have kept up with rapid population growth (much of it from overseas migration) and increasing rental demand.

The details

Property Investment Professionals of Australia (PIPA) is a body that represents hundreds of people working in the property investment space.

In a rare move, it has joined forces with rival advocacy group PICA - the Property Investors Council of Australia - to pen research on investors.

The two groups say that, between March 2019 and March 2024, Australia’s population grew by approximately 1.8 million people.

Looking at past trends, a population boost of that magnitude would necessitate around 212,000 new rental properties, and an additional 145,000 investors to enter the property market.

However, the groups found that the latest available data from the Australian Taxation Office (ATO) shows that there were only about 110,000 additional property investors in the five years leading up to 2022.

That means a shortfall of nearly 35,000 investors, over 5 years, needed to meet demand for rental properties.

Until about 2018, investor growth in residential property had been relatively consistent with population increases and rental demand, according to Nicola McDougall, the Chair of PIPA.

“From 2003 to 2017, the number of individual property investors grew steadily, with annual increases ranging from 56,000 to 60,000,” Ms McDougall says.

“However, this upward trend disappeared in recent years due to factors such as increased market interference, restrictive lending policies, and new regulations, reforms, minimum standards, and tax hikes, all of which have deterred investors.”

According to the research she commissioned, Ms McDougall says annual investor growth over the five years to 2022 averaged only about 22,300.

That’s a decline of about 60% compared to the long-term average.

Ben Kingsley, who chairs the Property Investors Council - PICA - says the decline in investor growth over the past decade is a significant factor contributing to the current rental crisis.

“Critics might claim we are self-serving, but various statistics confirm that investor activity is far below the level needed to house our growing population,” he says. 

“For instance, between 2015 and 2017, when investor growth was steady, the national vacancy rate was around 3%, with 70,000 to 80,000 rental vacancies available nationwide, according to SQM Research.

“In October this year, the vacancy rate had dropped to just 1.2%, with only about 36,000 vacant properties available.”

Property analysts generally consider a vacancy rate of around 3% “healthy”, as it represents a market that’s relatively well balanced between tenants and owners. 

It usually means a prospective tenant has a reasonable selection of properties to choose from, while landlords are still able to charge fair rents.  

A vacancy rate of less than 2% usually implies high rental demand. 

And lower vacancy rates mean a severe rental shortage where rents spike.

While lending to investors has risen sharply over the past 18 months, the Property Investment Professionals annual survey found that more investors sold properties over the year to August 2024 than in the previous year.

The PIPA Investor Sentiment survey found 2/3rds of these former rental properties were being purchased by homeowners rather than other investors.

“This year’s survey found that 14.1% of respondents sold at least one investment property in the past year, up from 12.1% last year,” Nicola McDougall says.

“These properties are predominantly being bought by homebuyers, which means fewer rental properties are available for tenants, exacerbating the current situation when combined with the decrease in new investors annually.”

Stop discouraging property investors

Ben Kingsley from the Property Investors Council says it is in everyone's best interest to encourage and support property investors to enter and stay in the market.

“It’s not only in the broader economy’s best interest, but also all levels of governments and, most definitely, in the best interest of renters. 

“Instead of disincentivising investment, governments should be encouraging investment into the private rental accommodation market and let these small businesses do what they do best,” he says. 

Given that the private market, characterised by so-called “Mum and Dad investors”, provides the overwhelming bulk of rental accommodation in Australia (the number of government-run public housing units available for rental has been steadily falling for decades), that’s an extremely wise piece of advice.

Failure to heed this warning in the face of still strong population growth will see the rental crisis continue indefinitely.