00:00Australia's housing rental system is a mess. It's not working for tenants or landlords.
00:09For tenants, rents took a sharp turn upwards after the pandemic, from an annual growth
00:13rate of less than 1.5 per cent a year to more than 9 per cent, and that hasn't slowed down
00:18yet. So the proportion of income needed to pay rent is now the highest it has ever been.
00:24Researchers have concluded that it was the result of a perfect storm of smaller households
00:29and the surge in migration after the pandemic, combined with only a short-lived rise in house
00:35approvals and no increase in units at all. In fact, as you can see from the chart, approvals
00:41have barely changed in 30 years, while Australia's population has increased by 10 million people.
00:48But the system is not really working for landlords either. The gross rental yield is a bit less
00:53than 3.6 per cent on average, having drifted downwards since the pandemic. Now, that's
00:59a full per cent below the interest on a bank account, which doesn't need the gutters repaired
01:03or the garden weeded. Now, it's true that you can negatively gear, but only if you're making
01:08a loss, which is not ideal. Otherwise, income tax has to come off that yield with no dividend
01:13franking. And then, there's land tax. For a $2 million property, the national average
01:18of that is $18,811. Now, the only reason to accept a lower yield than bank interest and
01:25pay that land tax is that you expect to make a capital gain, of which only half is taxed,
01:32which has been a good plan up to now, including last year. But all governments, state and federal,
01:39are working hard to flood the market with apartments and make housing more affordable, that is to
01:44make it a bad investment. Now, it's unclear yet whether governments will succeed in that,
01:49but whatever happens, they'll have a problem. If affordability does improve because there
01:55are no more capital gains, landlords will want out. If it doesn't, there will be a lot
02:01more life-long tenants, needing a lot more places to rent.
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