Why are landlords divesting their property?

But upon analysing the factors that influence landlords’ rental investment decisions through a survey of property investors, the study discovered that tenancy law reforms were at the bottom of the list of reasons why investors sold their properties.

While most investors acknowledged that tenancy law was an important consideration when buying, only 14 per cent of investors nominated dissatisfaction with tenancy laws as “very important” in their decision to sell.

By contrast, 50 per cent of surveyed investors said they had divested their property because it was a good time to realise capital gains, another 47 per cent said they wanted money for another investment, and 36 per cent said the rental income was insufficient.

Interestingly, the analysis of rental bond lodgements and refunds in Sydney and Melbourne from 2000 to 2020 also showed that there is “no evidence” of an investor exodus in the wake of the rollout of past rental reforms in NSW and Victoria. 

The research found tenancy reforms in NSW in 2010 did not affect the supply of rental properties in the state, as data showed the same number of rentals were added to the private rental sector after the changes as the previous trend, and ever fewer than estimated exited the market. 

In Victoria, slightly fewer rentals were added to the sector following the state’s tenancy law being reviewed in 2015. But the report noted that the regulatory shake-up did not have a notable impact on the number of rental properties being removed from the state’s market. 

Reforms working in favour of landlords rather than tenants

The study’s lead author, Dr Chris Martin, senior research fellow in the City Futures Research Centre at UNSW, said the research debunks the often-made claim by the property lobby that changes to tenancy laws serve a disincentive for landlords to enter the rental property market. 

“Overall, we found that Australian residential tenancies law reform has accommodated, even facilitated, the long-term growth of the private rental sector, rather than causing disinvestment,” he stated. 

The sector is dominated by small-holding landlords who frequently transfer properties into and out of private rental according to their individual circumstances and  wider housing market conditions. The reality is the Australian private rental sector is built for both investing and disinvesting, and that’s what landlords do,” the expert added. 

Data showed that more than half of the rental properties added to the private rental market from 2015 in Sydney and Melbourne were taken back out after five years.

In the NSW capital, the report showed 32 per cent of properties that first entered the private rental sector in 2000 were no longer in the private rental sector five years later, and 44 per cent were no longer there after a decade. 

Meanwhile, almost half (49.3 per cent) of properties were no longer in the Victorian capital’s rental sector five years later, while 58 per cent were no longer there after 10 years.

For properties that first entered the private rental sector in 2015, data showed that 54.7 per cent in Sydney and 51.4 percent in Melbourne exited after five years. 

The expert pointed out that the sheer turnover of rental properties in the major capitals highlighted that current tenancy laws work in landlords’ favour rather than tenants.

“As properties churn through the rental sector, renters get churned out of their housing,” said Dr Martin. “This is a basic problem for people trying to make a home in rental housing.”

He also commented that the country’s renting laws “really accommodate the dynamic nature of rental property investment”, which entails landlords frequently buying in and selling out or using it for something else.

“Landlords can access the sector easily because there are no licensing or training requirements. And they can exit easily because tenancies can be readily terminated,” he remarked.

The report noted that macro-prudential regulations, such as tax policy and financial regulation, had more impact than reforms in shaping the market, as these interventions can encourage some forms of investment and discourage others. 

Dr Martin said residential tenancy law reform had lacked national coordination, and significant divergences have opened up between jurisdictions. 

On that note, he called for the coordination between the Australian, state and territory governments to establish a new national tenancy law reform agenda and continuing processes for collaboration on best practice and problem areas.

“Some high-priority actions should include making tenancies more legally secure, clarifying landlords’ obligations regarding defective premises, and investigating contemporary rent regulation regimes to moderate increases in market rents,” Dr Martin recommended.