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Should Property Investors Seize the Opportunity in Australia’s Reaccelerated Rental Market Despite Chronic Supply Shortage?

By Ershad Ullah May 9, 2023 | Tags:

The Australian rental market has been experiencing an accelerated growth rate driven by demand pressures. According to CoreLogic, vacancy rates have dropped to a record low of 1.1% in the first three months of 2023, while quarterly rental growth has picked up again after slowing down in the second half of 2022. However, despite a stable annual growth rate of 10.1% for the year to March, the rise in rental prices is still a concern for renters struggling to find affordable housing in the country’s capital cities. Unfortunately, the situation is unlikely to improve anytime soon as the country’s chronic supply shortage continues to worsen.

The high costs and other building-related issues have made it difficult to construct more houses and apartments, exacerbating the housing crisis. National Housing Finance and Investment Corporation (NHFIC) stated although around 148,500 new homes are expected to hit the market in the 2022-2023 financial year, the number is projected to drop to 127,500 in 2024 and 2025. However, the demand is expected to rise again, leading to a more robust supply in the following year.

In the medium term, there will be a need for more apartments and multi-density dwellings for rent. Over the next five years, about 57,000 new apartments will be added each year, 40% less than in the late 2010s. Almost 377,600 families need housing, according to the commission. That includes the 331,000 who need help paying their rent and the 46,500 without a place to live.

Over the next ten years, 1.8 million new households will be in Australia. This will bring the total number of families to 12.6 million, up from 10.7 million in 2022. But because the housing supply is decreasing, there will be a negative balance of available homes of 106,300 over the next five years to 2027 and 79,300 over the next ten years to 2033. This means that more new households will want a place to live than there will be new houses available.

In Rental Market Vacancy Rates Reached a Record Low

According to CoreLogic, in the four weeks of April 2, national rental listings dropped to just under 95,000. This is 17.3% less than the same period in 2022 and 36.3% less than the average of the last five years. The lack of rental listings, mixed with the highest rate of people moving to Australia from other countries since COVID started, caused the national vacancy rate to drop to a new record low of 1.0% in February.

Rental Market

It increased slightly to 1.1% in March, down from 1.3% in December.  In March, the vacancy rate in all of Australia’s major cities fell to a new record low of 0.9%, while the vacancy rate in the rest of the country rose to 1.4%.

Why Are Rental Prices Going Up?

The return of international travel in 2021 and 2022 caused Australia’s net overseas migration gain to reach nearly 304,000 new people in the 12 months leading up to September 2022. This was a significant boost to Australia’s population growth. About 61% of recent immigrants from outside the country are now on temporary visas, which is why people want to rent. As a result, higher levels of movement are pushing up rental prices significantly since the number of available homes hasn’t increased at the same rate.

About 61% of recent immigrants from outside the country are now on temporary visas

From early 2020 to January 2023, rents in some outer suburbs of Sydney increased by more than 30%, more than three times as much as in some inner city places. There would be a need for 106,000 new homes by 2027 and 79,000 over the next ten years. Analysts say that because there aren’t enough homes, the prices of current homes will stay the same or go up.

Expect More Pressure on Rents

The Australian rental market is facing a supply-demand imbalance, and renters are unlikely to receive any relief in the short to medium term. Stock levels are expected to remain relatively high, and there isn’t much incentive for investors to enter the market. While gross yields have increased over the past year, net profits have decreased, making investors worse off. In the period between April 2022 and March 2023, rents increased by an average of $48 per week, but the average weekly investor mortgage payment on a typical Australian home rose by $184, leaving investors $136 per week worse off.

Rents increased by an average of $48 per week

Furthermore, net migration is likely to remain a crucial factor in driving rental prices higher. Tenants who can’t afford their rent have limited options, unlike homeowners who can borrow money to pay their mortgages. Some renters may have to give up their spare rooms or home offices and consider shared houses to split the cost of rent. Meanwhile, people with enough savings for a down payment may opt to buy a home, while others may prefer to lock in longer leases to avoid the hassle of searching for a new rental. Overall, the rental market remains challenging for tenants, with no immediate signs of relief.

It’ll Get Worse Before It Gets Better

Australia’s housing problem is expected to worsen if policymakers don’t do something about it. It is up to local, state, and federal governments to do something to stop Australia’s housing problem from getting worse. It comes down to zoning, planning, and the cost of building new subdivisions. So, that’s a critical problem for a country whose population growth changes a lot. We need to get the supply side of the housing market to react quickly to changes in population growth. If we can’t do that, rents and housing prices will significantly change.

Can Property Investors Help Solve the Rental Crisis?

Getting more people to invest in housing was the best way to ease rent pressures in the short run. In Australia, small investors control most of the rental markets, and as we’ve seen in the current rental crisis, some of these investors would be happy to sell out at some point so that the properties could be bought by people who want to live in them. It could take about five years to plan for more supplies for the home. The fastest way to solve the problem is for more buyers to buy homes that are already on the market and put them up for rent.

If we look at the number of loans given to real estate buyers, we can see that it has been below its long-term average since early 2017. There are several reasons for this: banks have charged investors higher interest rates, we’ve put limits on credit growth for interest-only, and investor loans and state governments have raised land taxes on investments. As a result, fewer investors are entering the market, but more are leaving it.

Building more homes for rent was the best long-term way to grow the number of homes for rent. Increasing the supply by getting more people to buy those investment properties or building a lot more homes and putting them up for rent can be an excellent solution to this problem.

Advantages for Investors if They Decide to Purchase a Rental Property

If you are planning to add an investment property to your financial portfolio, it can be a wise decision if you carefully evaluate your income, spending, and debt.

Advantages for purchasing a rental property
Advantages of purchasing a Rental Property

Investors can offset the cost of renting and maintaining an investment property by deducting them from their income, including their salary. It’s important to note that certain expenses related to the rental property can be claimed on your tax return, while others cannot. To learn more about the rental property costs that are tax-deductible and how to claim them, it’s recommended to consult with your financial advisor or property accountant.

Investment Property Tax Deductions That Can Be Claimed Right Away

Throughout a financial year, investors may incur various costs associated with the management and maintenance of their investment property. However, they can claim deductions on their taxes for certain expenses incurred during the period the property was rented out, including:

Property Management and Maintenance

This includes everything from advertising the property for rent to cleaning, gardening, and pest control, as well as strata fees if your property is part of a corporate body. You can also claim tax deductions for services your tenants don’t pay for as part of the lease.

Property Agent Fees

If you have a property manager who takes care of your rental property and its renters, you can write off their fees on your taxes.

Some parts of managing rental properties may require help from experts like lawyers and accountants. Lucky for you, you can claim what they charge on your tax return. Besides, if you are doing administrative work at home, you can claim the use of your phone, internet plan, and even office supplies on your taxes.


This tax deduction is for people who own rental properties, even if they have a more specific policy called “landlord insurance.” This type of home insurance covers the owner for extra costs, such as loss of rental income in certain situations and damage done on purpose by renters.

The Interest on Your Home Loan

Depending on the size of your debt and the interest rate on your home loan, this could be the most significant tax commitment for a person who owns an investment property. To claim mortgage interest payments on your taxes, you must have bought the property to rent it as an income-earning asset.

Council Rates and Land Tax

Land tax, council rates, and water rates can all be claimed as tax deductions if you sell out your investment property. When it comes to land tax, you should check the rules of the state or region you live in because there are different deduction rules and times for when to claim costs.

Repairs and Maintenance

House repairs can be deducted immediately, but they must differ from any improvements or renovations that could be seen as making your house worth more.

Investment Property Tax Deductions That You Can Claim Over Time

Some costs for your rental property must be claimed over a more extended period than the amount you paid in a given year.

Property Depreciation

Depreciation is another significant investment property tax deduction that lets you get back some of the money you spent on general wear and tear.

Borrowing Expenses

Investors in real estate can spread out the costs of getting a loan to buy a property over five years. This type of tax deduction doesn’t consider current interest payments. Still, it can include fees for applying for a home loan, having the property appraised, and paying for lenders’ mortgage insurance.

According to the Guardian, the rise in housing prices has been one of the primary factors driving rental rates in Australia. The construction industry is facing significant challenges, including supply chain issues and financial problems within construction companies, which have made it difficult to meet the demand for new homes and apartments. While the rental market in regional parts of the country is expected to improve in 2023, the conditions in major cities such as Sydney, Melbourne, Brisbane, Adelaide, and Perth will likely become even more challenging due to increased demand.

Experts suggest that property investment is the most effective way to alleviate mental stress. Therefore, property investors may find it advantageous to enter the Australian rental market at this time. It’s recommended to seek the assistance of a property accountant or financial advisor to ensure that your investment aligns with your financial goals and objectives. With their professional guidance, investors can make informed decisions and take advantage of the opportunities presented by the current market conditions.

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The material on this page and on this website has been prepared for general information purposes only and not as specific advice to any particular person. Any advice contained on this page and on this website is General Advice and does not take into account any person’s particular investment objectives, financial situation and particular needs.
Before making an investment decision based on this advice you should consider, with or without the assistance of a securities adviser, whether it is appropriate to your particular investment needs, objectives and financial circumstances. In addition, the examples provided on this page and on this website are for illustrative purposes only.