Australia’s Rental Market Dilemma: Skyrocketing Prices and the Rise of Rentvesting

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Australia’s rental market is at a crucial crossroads, as skyrocketing costs and limited housing supply are forcing tenants to make challenging decisions. On the other hand, with property prices increasingly out of reach, many Australians are exploring alternative property investment strategies, such as ‘rentvesting’.

According to a report by The Business Times, Australia’s rental housing market, fueled by a historic influx of migrants and a glaring lack of supply, is confronting an affordability crisis. Nationwide vacancy rates are at historic lows, and rental prices have shot up by 30% over the past three years. This has placed considerable financial stress on renters. For instance, Sydney office worker Lara Weeks had to move from her two-bedroom apartment, which she had lived in for 18 years, to a more expensive one-bedroom flat further from the city due to soaring prices1. “I find it sad that I can’t stay in the area for similar money,” Weeks lamented.

In addition to its immediate implications on renters, the rental surge is now a significant contributor to the country’s inflation, currently sitting at a yearly rate of 5.4% for the September quarter. This inflation rate is well beyond the central bank’s target of 2-3%, potentially leading to imminent interest rate hikes. These hikes would further strain landlords, who might consequently elevate rents, exacerbating the affordability issue for tenants.

However, amidst this backdrop, a fascinating trend is emerging. Sophie Venz, writing for Forbes Advisor Australia, highlights the growing popularity of ‘rentvesting’. This strategy involves purchasing a property in a more affordable region to rent out, while the owner continues to live and rent in their preferred, often more expensive, location2. The Australian Bureau of Statistics notes that approximately 15% of Australian tenants are now rentvestors.

Mark Wist, a Brisbane-based property expert, explained that rentvesting offers a dual advantage: exposure to the property market’s capital growth and income tax offsets, all while living in a location of one’s preference.

However, like any investment, rentvesting comes with its risks. Wist cautioned that if the owned property is vacant for any reason, the investor must cover both the mortgage and related costs for their investment property, along with the rent for the property they occupy.

While Australia’s housing predicament intensifies, it remains to be seen whether strategies like rentvesting offer a sustainable solution or are merely a temporary remedy for an increasingly turbulent market.

References:

“Australia’s tight rental market forces tenants to make tough choices,” The Business Times.  https://www.businesstimes.com.sg/property/australias-tight-rental-market-forces-tenants-make-tough-choices 

“Rentvesting Explained: What It Is, How It Works,” by Sophie Venz, Forbes Advisor Australia.  https://www.forbes.com/advisor/au/property/what-is-rentvesting/