10 Insights into the Investment Property Market

In recent news, rental affordability takes another dip; housing affordability improves despite values hitting new highs; vacancy rate eases for the third consecutive month; investors return to the market; Tasmania paves the way for pets in rentals while NSW establishes a rental taskforce to crack down on “dodgy agents and landlords”; and a landlord is forced to compensate a drug-growing tenant.

Each month we pull together 10 insights impacting the investment property market. Read on for this month’s instalment…

1. Rental affordability declines. Rental affordability declined across the nation in the March 2024 quarter, according to REIA’s Housing Affordability Report. Nationally, the proportion of income required to meet median rents increased 0.5% over the quarter to 24.4%. Rental affordability declined in all states and territories. According to the 2024 Demographia International Housing Affordability annual report, Australian markets are “impossibly unaffordable” with a median multiple of 9.7 (the median multiple is the median house price divided by the median income). Sydney was the second most unaffordable city (after Hong Kong) with a median multiple of 13.8.
2. Housing affordability improves despite prices rising. According to REIA’s Housing Affordability Report for the March 2024 quarter, housing affordability improved for the first time since 2021. The proportion of income required to meet average loan repayments fell 1.0% to 46.7%. Housing affordability improved in NSW, Victoria, Tasmania and the ACT, remained stable in SA, and declined in Queensland, WA and the NT. Data from the ABS showed the combined value of Australia’s 11,176,100 residential dwellings rose by $209.4 billion to $10.72 trillion in the first three months of 2024. The average price of residential dwellings rose by $14,300 to $959,300 in the March 2024 quarter, with the total value of residential dwellings rising in all states and territories.
3. Rents rise but increases easing. The pace of growth across Australian rental markets eased over the past few months, with CoreLogic’s National Rental Index rising 0.7% in May – the lowest monthly change since December last year. Most markets saw a reduction in rental growth relative to the first quarter of the year and the annual pace of rental growth also eased across most cities. In June, capital city asking rents declined 0.5% while there was no change at the national level, according to data from SQM Research. The median rent for capital city houses was down 0.6% to $834 p/w while units were down 0.3% to $626 p/w.
4. Vacancy rate hits highest level in 10 months. According to PropTrack’s Market Insight Report, the national vacancy rate climbed 0.08% to 1.3% in May – the highest level since mid-2023 and the first time three successive monthly increases have occurred since late 2020. The total number of rental vacancies Australia-wide stood at 35,641 residential properties in May, according to SQM Research.
5. Listings rise as buyers return to the market. May 2024 recorded a 5.5% increase in nationwide residential property listings, according to SQM Research. PropTrack’s Listings Report noted seller confidence was returning to the real estate market, with new listings up 18.5% annually. CoreLogic noted that vendor and buyer activity was high, except in Victoria and Tasmania.
6. New loans to investors rise. Data from the ABS showed the number of new loans to investors rose 5.6% to $10.86 billion in April – 36.1% higher compared to a year ago. ABS noted: “Lending to investors continued to rise strongly relative to owner-occupiers, driven by increasing loan sizes. This likely reflects expectations of higher rental yields and the greater borrowing capacity of investors. The average size of an investor loan for the purchase of an existing dwelling grew 9.5% since April 2023, from $592,000 to $648,000. The growth in the value of investor loans was strongest in New South Wales and Queensland, increasing 43.9% and 46.4% respectively since April 2023.”
7. Money matters. At its Board meeting on 18 June, the RBA decided to keep the official cash rate at 4.35%. CoreLogic noted that although rates had been left on hold, mortgage arrears were rising and expect the number to increase. A Finder survey found 27% of mortgage holders are due to come off a fixed rate in the next year, exposing them to the impact of the fastest and largest rate hiking cycle on record. Elite Agent reported inflation figures indicate a longer interest rate pause and not a rate rise. The expectation that interest rates were set to fall was behind this year’s uptick in activity, according to the Herron Todd White Month in Review. PropTrack’s April Residential Audience Pulse Survey revealed that interest rate levels were more of a worry for buyers than sellers. One in eight mortgage holders had missed one or more loans repayments in the past six months, according a survey by Finder.
8. Government beat. Tasmania paves the ways for pets in rentals with an amendment to the tenancy law. The Residential Tenancies Amendment (Prohibiting No Grounds Evictions) Bill 2024 has been presented to the NSW Parliament. Feedback is being sought on the proposed change. The NSW State Budget 2024-25 was handed down on 18 June 2024. A number of initiatives to address housing issues were included such as $8.4 million being allocated to establish a rental taskforce to crackdown on “bad behaviour from dodgy agents and owners”.  Stage 2 rental reforms commenced in Queensland on 6 June 2024. The Queensland State Budget 2024-25 was handed down on 11 June 2024. Projects include a $3.1 billion investment as part of Homes for Queenslanders and an increase on the taxes paid by foreign investors.
9. Making headlines. A call to cap the number of short-term rentals was made by Grounded Community Land Trust Advocacy after its report, From a Housing Problem to a Solution, found that 74% of new housing supply heads straight to the short-term rental market. A New Zealand landlord has been ordered to compensate a tenant NZ$10,335, despite the tenant’s involvement in illegal cannabis cultivation on the property, according to a report from Domain. An online petition raising concerns about rent tech apps has garnered media attention and thousands of responses. Almost half of Australian homes are at risk of bushfire, while 8.1% face flood threats, according to Domain’s 2024 Perils Report.
10. On the radar – green edition. The Victorian Government has proposed introducing minimum energy efficiency and safety standards for rental properties. The Federal Government announced a new initiative that will offer discounted green loans to households to help boost energy efficiency. REIA welcomed the initiative but emphasised that more comprehensive support, in terms of both policy reform and funding, was needed to address the mammoth task of retrofitting existing housing stock. According to Domain’s Sustainability in Property Report, ‘green homes’ are easier to sell, attracting 16% more listing views nationally, and spending 4% fewer days on market. It was also found that energy-efficient homes were more valuable – to the tune of $112,000. Demand is growing for sustainable Airbnb and short-term rental accommodation in Australia, according to Alice’s Home.