Investment properties aren’t all selling to first home buyers

We’ve all been hearing about the rental crisis. A depleted supply of rental properties is not meeting current demand. Queues for newly advertised rental properties are long, often wrapping around blocks.

Rents have been rising aggressively since the pandemic, and unfortunately it doesn’t look like the situation will improve for a very long time.

Several of our states and territories have implemented new rental laws, some of which are particularly onerous. Victoria is arguably the most impacted by these changes, and in tandem with additional land tax burdens, our state is now recording the highest proportion of investors who are selling.

Investors are selling and our rental supply is depleting.

Popular thinking is that more first home buyers are entering the market. However, data and anecdotal evidence suggests otherwise. First home buyer participation has been lower this year, and this is not surprising.

As a cohort, first home buyers are more nervous, and more likely to be dissuaded from purchasing by media doom and gloom stories. In addition, rate hikes in quick succession spooked quite a few first home buyers.

Investor lending activity fell earlier in the year but has rallied since. With increased rents (and hence, rental yields) due to supply and demand imbalance, plenty of investors have returned.

However, the dominant proportion of sales in some locations (including Melbourne and Sydney city) are investor-led. Contrasted to historical figures, this percentage is alarming.

As our former REIV President, Geoff White points out in his interview with the AFR, conditions are unfavourable to landlords, and plenty are voting with their feet. They are disincentivised to invest in property, and many are turning to shares and other asset classes. Victoria has been particularly hard hit.

It begs the question; If our recent peak in selling activity has been broadly activated by disenfranchised investors, and if first home buyer uptake is down, who else is buying the stock that investors are selling?

We have had a disproportionate number of “second home” buyers asking us for assistance with their plans to acquire a ‘city pad’. We have worked with busy professionals who escaped our lockdowns and purchased on the coast, (or in the country). They have chosen to secure a home-away-from-home in the city. Now that bosses are calling staff back to the office (full time for some, and part-time/hybrid for many), the drudgery of the commute doesn’t appeal. Their solution is simple, and with heightened investor selling activity, it’s been advantageous for them. In addition, we have also helped older couples and singles with their ‘city pad’ acquisition also; as a way for them to enjoy the spoils of the city in tandem with their country/coastal home.

These buyers are not investors. Nor are they a first home buyer.

For those who think an investor-led sale results in higher levels of home ownership, where does a two-home household fit in?

Our supply issue is dire, and new construction of public housing and build-to-rent housing will not be able to keep up with the pace of reducing supply. Public housing accounts for just 9.1% of our total rental housing supply in the nation.

The rate of investors leaving this asset class should be alarming our policy-makers.