Property experts at National Australia Bank and Ray White say their analysis has been misunderstood. So how high will rents really rise?
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Headlines claim rents in Australia will surge thanks to Labor’s property tax reforms. Is there any proof?
Critics have claimed property investors have no choice but to hike rents by 30% but the experts say their analysis has been misused.
There have been media reports that rents may rise by almost a third in response to Labor’s tax changes, citing analysis from National Australia Bank and, separately, Ray White.
The bank and property group have since clarified that their models are not, in fact, warnings of an Armageddon scenario for renters.
Instead, both analysed the reforms’ effect on landlords’ yields, which are the post-tax, post-negative gearing income they get from an investment, compared to what it cost to buy.
They have found property is now less attractive to new investors, who will not enjoy the same negative gearing benefits as those who purchased before the May budget reforms.
The 30% figure merely represents the theoretical rental increase required to restore yields for new investors if property prices remained static.
In reality, properties that previously appealed to investors primarily due to negative gearing benefits will either be purchased by owner-occupiers or fall in price until they provide a viable return for new investors.
This is what is supposed to happen in a healthy market when the distorting effect of negative gearing dissipates.
Critics suggesting new investors, without negative gearing benefits, will bump up prices to make their investment profitable.
Tim Wilson, the shadow treasurer, told News24 on Wednesday: “We’ve now had Ray White say … ‘Yep, this all stacks up. Get ready, if you’re a renter, to pay higher rents because of Anthony Albanese and Jim Chalmers.’”
While a landlord’s individual circumstances can influence what rent they chase, ultimately the market decides what price they get.
Landlords will likely raise their rent if they can find tenants who will pay, regardless of tax settings, interest rates or other financial pressures.