Will Australia follow the US rental property trend?

Nerida Conisbee,
Ray White Chief Economist

In the US, large companies currently own five per cent of rental properties. This asset class
is referred to as “multi-family” in the US and is the largest property investment type in that
country. A study released last week by MetLife Investment Management has forecast that
by 2030, the proportion of rental properties owned by corporations will increase to 40 per
cent. A US renter will be just as likely to be renting from a large company as a private
landlord by this time.

In Australia, “build-to-rent”, as we call “multi-family” is still in its infancy. There are currently
3,800 built to rent homes completed with a further 8,400 under construction and 22,500
proposed. Once all of these are complete, it will still only mean 1.2 per cent of all rental
properties are owned by companies. Far less than what is owned by companies in the US
and still a fraction of what is owned by private landlords (typically mum and dad investors)
which sits at 84 per cent. The government currently owns around nine per cent with the
remainder being a mix of not for profit organisations such as charities, as well as religious
groups.

With Australia currently in the midst of a rental crisis, the question of who provides rental
properties needs to be considered. We have relied heavily on private landlords for almost
all our rental properties but we may not be able to so readily in the future.
The problem with relying on one group for almost all our rental properties is that when
conditions discourage that group from investing, it impacts the supply of properties
available. From housing finance data it's apparent that right now, there are fewer new loans being written to private landlords. Cost of finance is high and it is more difficult to get loans.

Even if you are able to get a loan there is a shortage of properties for sale. Providing a wider
mix of landlord types better improves the resilience of rental availability.
Another group that could potentially provide more rental properties are state and federal
governments. The track record of this provision hasn’t been great. Necessarily, the
government should be providing homes for our most vulnerable, however the number of
social housing tenancies has been cut in half since the 1990s. This needs to be fixed before
the wider rental market is even considered. Regardless, the pandemic has left the
government sector with very high debts and some of the mechanisms that other countries
use to provide cheaper housing such as provision of government owned land are not
possible.

Foreign private investors were a significant contributor to rental properties last decade but
are currently far less active. Investment from China, the biggest contributor, has dropped
significantly. Reducing some of the blockages such as higher stamp duty and taxes may help.
Even if Australian restrictions are pulled back, there is little that can be done to restrictions
put in place in other countries.

Right now, large companies are one of the few groups still active in the provision of rental
properties, as well as being able to attract funding to do so. We are still a long way from
even closely resembling the US currently in the corporate ownership of rental properties,
let alone the forecast provided by MetLife. But planning for greater diversification of rental
property ownership should be encouraged and build to rent is our best bet to supply
enough homes for the future.