The amount of money being invested into housing for the rental market (or resale) is significant with $12.0 billion in September 2014. With only 7.6% of that investment for the construction of dwellings for rent or resale, there is considerable pressure on the existing housing, which is being reflected in the competition in the Sydney and Melbourne markets.What is interesting in the September statistics is that this is only the second time since the data collection commenced in January 1985 that the total amount of money in loans taken out by investors is higher than total loans taken out by owner occupiers (not counting loans for renovations). The first time this occurred was in June this year.The question is whether this investment constitutes a “bubble” or it is reflective of broader social changes. According to the ABS the number of renters in Western Australia increased from 25.7% to 26.8% between 1998 and 2010, but this includes state funded housing. When just considering private rentals, the variation is more significant rising from 18.7% to 22.1%. Northern Territory is champion of private rentals with 28.1% followed by Queensland on 27%, then NSW on 24.4% and Victoria 24.4%.
There are lots of factors which influence the choice between renting and buying including the associated cost. In Western Australia the mean weekly household rental cost is 74% of the mean weekly household cost for somebody with a mortgage, with most states sitting at similar levels (NSW 76%, QLD 73%, and Victoria 72%). But the longer term benefits of home ownership make it a goal for many.
One of the reasons renting is cheaper than buying is that there is negative gearing for investors which, through competition, results in discounted rental rates. The challenge that is attracting a lot of media coverage at the moment is those investors then compete in the market against first homebuyers, which in times of constrained supply, can bump up prices. But if the incentive to invest in rental properties is removed, pressure will be placed on rental supply and cost. Housing policy is complex, be cautious of people offering simple solutions.