NSW’s no-grounds evictions ban: Should investors be worried?

Several real estate bodies have expressed concern that the ban will deter investors from entering the market, reducing rental supply and making “the dire situation for renters even worse”.

“The cruel irony for tenants is that every time you make residential property a less attractive investment, the more you drive investors away, and the less homes there are to rent,” said Tim McKibbin, CEO of the Real Estate Institute of NSW.

“Investors can put their money into shares, commercial property, fixed interest and other alternatives. For them to choose residential property, it has to be the most attractive option, and tenants depend on investors making this choice.”

His view was echoed by Ben Kingsley, chair of the Property Investors Council of Australia, who prophesied a dire future for the NSW rental market once the ban takes effect.

“Governments and politicians are naïve if they don’t think that some reforms to the current tenancy laws put tens of billions of annual investment dollars at risk in the private rental sector being spent in their state or territory – money that […] adds critical supply to the rental pool,” Kingsley said.

“If fewer everyday Australians believe they will achieve an adequate return on their private rental accommodation businesses, the further pressure will be put on these politicians to cover the supply shortfall in rental housing, resulting in increased government spending and higher government debt.”

However, CoreLogic head of research Eliza Owen revealed that these fears may not be founded.

Data has shown that tenancy reform has minimal impact on investor activity. Instead, Owen noted that “the supply of rental property is largely influenced by access to finance and capital growth return”.

“In Western Australia, where ‘no grounds’ evictions remain firmly in place, investor activity over the past few years has been rising strongly, and the state is attracting a higher share of investment loans. The number of new investment loans secured for WA investment properties in May was up 53 per cent year-on-year,” Owen said.

She noted that the frenzy of new investor activity in Western Australia “hasn’t been enough to boost rental supply to the extent that it is making life easier for renters now,” observing that “rents rose faster in WA in the past year than any other state or territory”.

As Australian National University economist Peter Martin AM has previously noted, a slowdown of investor activity does not necessarily tighten rental demand.

“If higher rates force some landlords to sell, and they sell to other landlords, the number of properties for rent won’t change. If those landlords sell to owner-occupiers who would otherwise rent, they cut both the number of rental properties and the number of renters,” Martin explained.

Instead of worsening conditions for renters, Owen stated that the no-grounds evictions ban will likely have an opposite effect.

“Ending ‘no grounds’ evictions will support greater security of tenure for tenants. While this will come at the cost of flexibility and potential rental income gains for landlords, reducing the power imbalance for tenants is unlikely to have a substantial impact on investor activity or rent values,” she concluded.