The ethics of investing: Making money in a rental crisis
With the rental crisis ramping up, so has rhetoric around the many different roles that people play in the private rental sector: landlord, tenant, property manager and lawmaker.
While political parties like the Greens have called for a national freeze on rents, others have argued that such policies are an overreach by the government and would disincentivise investor activity, further exacerbating the crisis.
Investors, meanwhile, have reacted to the “greedy landlord” inference that these discussions bring to the surface by the suggestion that government intervention is necessary because they’re increasing prices more than they should – or more than is fair.
On a recent episode of Property Investing Insights with Right Property Group, Phil Tarrant, along with Steve Waters and Victor Kumar, discussed why the current conversation has everyone on edge, and looked at the delicate balance the government must strike in regulating the rental market.
As they agreed, from a baseline perspective the government needs to ensure that the country has enough dwellings to house all of its residents, and that those homes are fit for living. Because of the fact that the vast majority of investors – around 90 per cent – are so-called “mum and dad investors” who hold one to two properties, the government also plays a role in ensuring that investing on a small level provides incentive to keep them active, so that rental stock stays at least at its current level.
Lately, the government has also looked at changing some tax settings to get institutional investors more active as well, in the form of build-to-rent projects.
In the eyes of the Right Property Group team, the government should be ensuring that there’s motivation for both entities to be in the business of providing rental accommodation.
“The government should be incentivising both institutional build-to-rent and they should be incentivising mum and dad investors, because the inherent problem is that we don’t have enough property in Australia at the moment for people to rent and we’re not building enough. So we’re getting further behind the eight ball,” the trio opined.
But that “motivation” necessarily comes in the form of financial gains. And it raises a question that they describe as “uncomfortable”.
“Is it okay for property investors to make money in property investment when other people are doing it tough?” Mr Tarrant queried.
“The short answer is yes, as long as it’s done ethically,” Mr Waters replied.
Mr Tarrant agreed:
“It’s incumbent on the government to make sure that those people who are struggling have a safety net. And I think the problem we have is that a lot of people feel as though they don’t. So you have these two sides of this, which is the social and community concern. Then you actually have the way in which the mechanics of property investment works in Australia, which means that Australian property investors need to make money. And that’s a very, very uncomfortable relationship that a lot of people have.”
To all this, Mr Kumar added that this doesn’t mean investors should expect the way to be paved for them – that landlords need to assume the long-term path will have ups and downs, depending on the surrounding economic conditions.
That’s why he said that successful investors craft strategies that allow them to weather challenging conditions, accepting that there might be times of great return, as well as the opposite.
“Property investing is never going to be smooth sailing because you will have to deviate every now and then to perhaps avoid a squall. You may have to weather the rougher seas as opposed to the calmer waters as such, but you could see that coming if you’re well invested and you actually take a physical interest and a strategic approach towards investing, you will see those rough waters coming way ahead of time. You will see those clouds in the horizon and take the action well ahead before you’ve even hit that.”
Listen to the full episode here.