Balancing affordability and profitability in Australia’s rental market

The rise in property values, while beneficial in terms of capital appreciation, has led to higher purchase costs and, subsequently, increased rental prices to cover mortgages and other expenses.

Moreover, some states have introduced stricter regulations that affect how investors manage their properties, holiday letting being one example. Limitations on rental increases and enhanced tenant rights can impact the profitability model that investors have relied on. Increased land taxes in some states, such as Victoria, are making it more difficult for Australians to afford and hold investment properties.

The fact is, though, in the absence of new government housing, the market relies on private investors providing housing opportunities for renters.

On the flip side, tenants face significant affordability issues. The median rental prices in major cities such as Sydney and Melbourne have reached new highs, pushing the boundaries of what many residents can afford. This is compounded by a competitive market where demand often outstrips supply, leading to bidding wars and fewer options for affordable housing.

For many tenants, the rising cost of living, paired with stagnant wage growth, means that finding affordable rental accommodation is more challenging than ever. This has led to increased calls for more protective measures for tenants, including rent controls and more substantial tenant support systems to ensure that renting does not become an unsustainable living option, and lead to housing insecurity.

Addressing affordability is crucial for both investors and tenants. For investors, the ability to charge competitive rental rates is essential for the sustainability of their investments. However, they must also consider the long-term implications of high turnover rates and vacancies which can arise from pricing out potential tenants. Therefore, savvy investors should be looking at ways to maintain reasonable rents to attract long-term, stable tenants.

For tenants, affordability is about more than just rent costs. It encompasses the overall cost of living, including utilities, transportation and other daily expenses. As such, there is a growing advocacy for comprehensive affordability strategies that go beyond simple rent caps. These include promoting the development of affordable housing, offering tax incentives to encourage lower rental prices and improving public transport to reduce living costs.

An increase in housing availability doesn’t happen overnight. As plans to increase the supply of public housing to support low-income families are developed, governments at both state and federal levels play a crucial role in shaping the dynamics of Australia’s rental market. Effective policy measures could help balance the needs of property investors and tenants. For example, tax incentives for investors who offer their properties at below-market rents to decrease rental costs and improve their property’s occupancy rates.

Additionally, policies that promote transparency, fairness and stability in leasing agreements are beneficial. These can include clearer guidelines on rental increases, dispute-resolution mechanisms and enhanced security of tenure for tenants. A national Tenancy Act could also benefit investors and renters alike.

As Australia’s rental market continues to evolve, the need for dialogue and cooperation between property investors, tenants and policymakers becomes increasingly apparent. By addressing the concerns of affordability and profitability collectively, stakeholders can work towards a more balanced and sustainable rental housing market.

While the challenges are significant, there are pathways forward that can benefit both investors and tenants. Striking the right balance between profitability for investors and affordability for tenants will require thoughtful approaches and robust policies that adapt to the changing economic landscape and housing needs of Australians.

Carolyn Parrella is head of customer service at Terri Scheer, Australia’s leading landlord insurance specialist. For more information visit terrischeer.com.au.