According to experts cited in The AFR, a lack of investors is partly to blame for Australia’s rental crisis, while investors already in the market are struggling to hold onto their rental properties because of soaring mortgage costs.
“The rising interest rate environment has deterred investors, and that’s compounding the current strain in the rental market”, said CoreLogic’s research director, Tim Lawless.
“It is definitely harder to hold, due to increased borrowing costs, and harder to add to a portfolio, due to the tightening of borrowing criteria”, said Margaret Lomas, veteran investor and mortgage broker at Destiny Financial Solutions.
“The banks are making it incredibly hard to borrow once you get past two to three properties”.
Recent analysis from CoreLogic showed that mortgage payments have risen at a much faster pace than rents.
In Sydney, for instance, rental income has increased by around $340 per month over the previous year, but monthly mortgage payments on a $500,000 loan have increased by about $1,113, based on a 5.78% interest rate over a 30-year loan term with principal and interest instalments.
Rents have increased nationwide by $227 per month, but monthly mortgage payments have increased by a far higher $904 per month.
In fact, 100% of suburbs with house rental markets and more than 97% of suburbs with unit markets in Melbourne and Sydney are now cashflow negative, according to CoreLogic:
And these rental losses are forcing investors to sell, with property investors accounting for more than 30% of homes for sale across Australia, up from around 20% previously.
In the short-term, investors will face further financial pressure as the tidal of borrowers who took up cheap fixed rate loans over the pandemic reset to variable rates that are double or triple their present levels.
There is also the possibility of another interest rate increase by the Reserve Bank of Australia.
Beyond that, the circumstances facing property investors will improve.
Late this year, the Reserve Bank is likely to start cutting interest rates, which will lower mortgage costs and increase home values.
Rental growth should also continue to be strong given there is record immigration amid lacklustre housing supply.
So while 2023 will be challenging for property investors, 2024 is expected to bring back the boom.
