20 May 2022

Skittish 'mum and dad' investors worry about the future for Canberra's renters

| Lottie Twyford
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Housing from above

Residential vacancy rates are currently extremely low in the ACT – sitting around 0.5 per cent. Photo: Michelle Kroll.

It’s no secret that Canberra’s rental market isn’t pretty for those trying to find a place to live. Investors warn that’s only going to get uglier if more and more of them take the easy option – sell up and get out.

Rising costs like rates, land tax and maintenance have to be balanced against the lure of a high-priced sale in a hot market.

Take the cases of June* and Sue* as examples.

June has owned a unit in Canberra for five years. In that time, she says “every cost has gone up”.

It’s got so bad that she’s seriously considering jumping ship although, as a self-funded retiree, she worries about whether a “pile of capital” would be as secure as her current regular rental income is.

The costs June is referring to include rates, land tax as well as bills and maintenance on the property, which is increasing as it ages.

June has thus far been reluctant to pass the costs on in the form of a rent increase because she doesn’t want to lose good tenants. She’s been charging around $400 a week for the townhouse since she bought it in 2017.

“There’s no point having the place empty as that’s time and money that you will never get back,” June said. “Also, they are very nice people who have always looked after the place and allowed access for tradespeople to do repairs.”

As a ‘mum and dad’ investor, June says it’s vital she and her tenants have a good relationship, especially as she doesn’t have a property manager working as a go-between.

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June hasn’t yet decided if she will go ahead and sell the property but she is monitoring things – including interest rate hikes – very closely.

She is worried about what will happen to tenants just like hers if the property isn’t bought by another investor and it reduces the stock of rental accommodation.

That’s a phenomenon real estate agents say they are starting to see more and more frequently.

Hannah Gill

Hannah Gill is the Real Estate Institute ACT President and Director of Property Management for The Property Collective. Photo: File.

Real Estate Institute ACT president Hannah Gill said investors were bailing out of the market to realise massive capital gains instead.

She’s seen investors blaming legislative changes, land tax and the looming prospect of having to meet minimum energy efficiency standards as their reasons for selling up.

One investor who sold up a few years ago was Sue.

She let her property go in 2018 after 17 years of copping increases in land tax and other costs and, in her words, “saw the writing on the wall” for what was coming.

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Much like June, Sue purchased a property so she could have another source of income in retirement.

But in the few years before Sue sold it, she estimated her land tax payments increased by about 20 per cent. According to official ACT Government figures, she might not be far off.

Pre-pandemic, land taxes increased at about 4.7 per cent per annum on average although the last Budget, handed down by the local government in October 2021, foreshadowed that land taxes would increase by 6.1 per cent over 2021-22 to 2024-25

Also like June, Sue never raised the rent for her tenants. She said it was simply a case of acknowledging that her tenants would not have been able to afford the difference.

She also valued keeping “long-term, good tenants” who looked after the place and treated it like it their own home.

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Renting in Canberra is expensive and, with vacancy rates around 0.5 per cent, it’s also difficult.

The ACT Government has committed to looking into what can be done – including the possibility of a vacancy tax and a better understanding of the impact of short-term rental platforms like Airbnb.

The government has also proposed introducing minimum standards for rental properties, banning no-cause evictions and regulating or prohibiting rent bidding.

But June isn’t convinced making life harder for investors is going to help.

“I’m very perturbed that the changes in Canberra – if the government makes it harder and more expensive for them – are very short-sighted,” she said. “Do they want landlords to get skittish and sell their properties?

“We’re mum and dad investors doing good things, so leave us alone.”

*Names have been changed.

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The ACT Government hates private landlords and treats them very badly, taxing them as high as they possibly can. It’s very sad to see small property investors be treated in this way, and being forced to sell. The ACT Govt just wants to bully small investors, so they get rid of small investors (mum and dads owning just 1 or 2 investment properties and saving for retirement) as the ACT govt wants big global housing companies take over running rental properties. There is big money to be made for the ACT govt. This means the Act Govt can get big $ kickbacks, and get big bucks with multi corporations running all rental properties (google: Blackrock buying up housing) and see what is going on overseas, and what will soon happen in Canberra

Gordon Williamson11:20 pm 23 May 22

#1. If there are not enough investors then there are not enough rentals available in the private rental market.
#2. In the ACT, by legislation, rental returns are effectively capped to CPI but rental expenses are not similarly capped – i.e. rates, land taxes and interest rates increasing much quicker.
#3. Proposed legislation expects private landlords to make significant investments in energy efficiency without any commensurate increase in rental income.
Inevitable end result – see #1.

Inevitable end result being a former renter becomes an owner?

The house doesn’t disappear if the investor sells it.

From my own experience, the profit made from the rental property will go back to the council, the tradies, and the property manager. It makes so much sense to sell and get out!

One of the purposes of the shift from stamp duty to land tax is to increase the ease (decrease deadweight cost) of trading a property (and not only investment properties). This article suggests it is succeeding. As a Rabbit says below, this does not change the nett availability of properties. It does improve labour mobility, whether in trades or professions.
On another note related to the last paragraphs of the article, being a landlord is not a virtue, it is an investment decision. Don’t be precious.

Capital Retro5:35 pm 22 May 22

China is looking inward more every day and it is likely that all Chinese students studying in Australia (a lot in Canberra) will not be allowed to return here next year.

Did someone mention supply and demand?

Hilarious stuff.

Poor investors, they might have to realise some of their massive capital gains (50% off of course) on the properties that they’ve negatively geared for years.

I feel terrible for them.

I am a Rabbit™1:30 pm 22 May 22

Basic economic knowledge will tell you that rental prices are dictated by supply and demand. Investors selling to realise capital gains don’t suddenly adjust either of these factors – the only two situations where this occurs is if it’s someone looking to do a rebuild before moving in, or if it’s an FHB who previously lived with their parents/sharehouse. That’s a minority of sales.

The real problem with the housing crisis is restrictive zoning laws. This idea that “mom and pop landlords” have that tax increase drives rental price increases is absurd. You can mount an argument that in the very long term, it could reduce the number of new builds – but that’s not an issue at the moment because Canberra still has the highest rental yields after costs in the country. It’s purely an issue with restrictive zoning preventing future supply from being built.

Seriously disgusted by how landlords have been treated by this ACT government!

Capital Retro10:05 pm 24 May 22

Some ACT Government ministers also have investment properties so I hope they are suffering too.

Agree Sam! The ACT government is terrible, and many property investors in Canberra are selling/have sold. New investors are not wanting to invest in Canberra and are going to other States that treat landlords more fairly (unlike the ACT govt). One of the main reasons why Canberra’s rental market is so undersupplied (and rental prices are high) is because a large number of investors sold their properties, and new property investors are not buying in Canberra (they realise it’s not worth it). Less rental properties = higher rental prices.

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