Rental investor numbers fall for only third time in 25 years, ATO data shows

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7 hours ago

Thousands fewer investors declared rental income in 2022-23 than a year earlier — only the third time annual falls have occurred, according to Australian Tax Office (ATO) data.
The other occasions coincided with the 2008 global financial crisis and the COVID-19 pandemic reaching Australian shores.
There were 7,081 fewer rental investors in 2022-23, equating to a modest 0.3 per cent reduction.
However, it was a noted reversal to the general trend in records going back to 1999-2000, when an average year saw the number of investors declaring rental income increase by about 47,000.
While the overall number of investors shrank, the decline was concentrated among those with multiple investment properties.
An ABC analysis of different groups of investors showed a general trend that the more rentals a group owned, the more the size of that group shrank between 2021-22 and 2022-23.
The number of investors declaring income from only one rental actually grew by 2,337, while the number with two or more fell.
Investor groups blame interest rates, less investor-friendly tax and policy settings, and increased tenants' rights for the drop-off of investors.
Landlord Glenn Langdon agreed with the assessment — similar factors had led to his decision to sell his only Victorian rental, in Greenvale, last week.
He was using the money to buy a third rental in Queensland, where he said taxes were lower and there were fewer demands on investors.
"There just seems to be constantly more and more cost to own a rental property in Victoria than in other states," he said.
A ban on no-fault evictions, hikes in land taxes for investors, and increased renter rights had all contributed to his decision to sell.
"There's no protection for the landlord, I feel," said Mr Langdon.
Eliza Owen, head of research for property data firm Cotality, told ABC News it might seem surprising investor numbers have fallen when residential real estate was "so often heralded as a safe investment".
It became less surprising when you considered that the 2022-23 financial year was characterised by falling home values and rapidly rising interest rates, she said.
"Between June 2022 and 2023, the average outstanding investor mortgage rate rose from 3.88 per cent to 6.6 per cent, increasing the repayment on a $500,000 loan by $830 per month.
"By comparison, median monthly rent values in Australia increased by $316."
Ms Owen said there were advantages and disadvantages to a smaller cohort of investors — one being that it might free up more stock for home owners to buy.
However, it was unclear if this had come to fruition, with no reliable home ownership rate data since 2021.
Australian Bureau of Statistics (ABS) lending data showed investors made up between 25 and 30 per cent of home borrowing between late 2019 and late 2021, before beginning a slow recovery to make up around 38 per cent of borrowing in the March quarter of this year, suggesting investors were returning to the market.
Ms Owen said it was hard to say whether the investor cohort has grown since 2022-2023 but, with housing values back to record highs and interest rates stabilising and now beginning to fall, it was possible investor numbers would grow again.
Property Investors Council of Australia chair Ben Kingsley said changes in the investor cohort were heavily influenced by government policy and interest rates.
He pointed to 1999, when the Howard government introduced the 50 per cent capital gains discount — triggering a period of investors buying in (which was also a period of rising house prices) followed by a blip around the global financial crisis, which followed a period of high interest rates, and then renewed growth from low interest rates after the GFC.
Then, in 2017, Mr Kingsley pointed to the ban on travel and depreciation claims on existing properties, followed by a raft of reforms to lending rules and state tenancy laws over subsequent years, which appeared to dampen investor interest.
He said over the five years to mid-2023, the average annual increase in investor numbers sat at around 10,600 — well below the 53,000-64,000 experienced during the three five-year periods preceding it.
"Add these numbers to the exodus we are seeing in Victoria, and it's blatantly clear we have a housing supply problem, partly because investors running their private rentals are tapping out," he said.
While the ATO data showed slowing but still positive growth in Victorian investors, more recent rental bond data indicated an investor sell-off, with the state losing more than 24,000 rentals during 2024 — or 3.6 per cent of the state's entire rental stock, which has proven a boon for first home buyers trying to get into the market.
Mr Kingsley said property building would suffer without willing investor money.
However, building investment is difficult to track.
Cotality's Ms Owen said it was "quite possible" subdued investor activity has resulted in less construction activity than otherwise.
"CBA has reported in a previous economic note that about half of off-the-plan demand in new apartment buildings comes from the investor cohort," she said.
Richard Temlett, national executive director of Research at Charter Keck Cramer, advises developers and government on housing policy.
He said he had never come across reliable data that showed whether domestic investment in new-builds had fallen, but investment figures from NAB showed foreign cash going into building had dropped since 2018.
"Foreign investors have a very bad wrap, people keep thinking they are buying established dwellings, driving up property prices, stealing properties from locals," Mr Temlett observed.
"That's not the case at all, especially with the legislation that mainly says it has to be for new supply of dwellings.
Urban Development Institute of Australia (UDIA) chief operating officer Peter Sherrie said flagging investor demand, driven by higher taxes and construction costs, had resulted in many approved medium density and high-rise developments around the country sitting unstarted.
UDIA represents the property development industry, with more than 2,500 member companies.
"When the feasibilities aren't working, the developers aren't able to achieve their construction funding, and the project doesn't start," he said.
While investors could once increase rent to make investments work, that option seemed to have dried up.
"It's reaching that ceiling now … tenants just cannot afford to pay more, it's just beyond their capacity," Mr Sherrie said.
He said building continued at greenfield developments, which had a lower entry cost and greater capital gain potential, the build-to-rent market, and developments that sold directly to home owners, where apartments were generally larger, finished to a higher standard, and more expensive.
Rayna Fahey, who is director of advocacy at pro-land tax non-profit research institute Prosper, said a fall in investors declaring rental income did not necessarily mean rentals were sold, and may mean investors simply left the property empty, satisfied with waiting for capital gain.
"Our tax system rules so heavily rewards speculation over production, speculation really distorts the property market," Ms Fahey said.
If investors did sell, she said it would likely be to a home owner, who would live in the home, or possibly to another investor who would rent it out.