The Australian property investment market bounces back
More property investment means more supply for tenants amid a rental housing crisis
2 min
Investors are returning to the property market after an exodus in early 2023 and a significant decline in investor buying between 2015 and 2020. The lack of investor activity has been seen as a contributor to today’s massive undersupply of rental homes. That five-year decline began after the banks applied higher interest rates to investor loans in a bid to slow investor loan growth, as requested by the prudential regulator.
However, the latest lending data from the Australian Bureau of Statistics shows a 20.4 percent increase in the value of investor loans over the past year, indicating more investors are buying property. This is welcome news for renters across the country, who are finding it exceedingly difficult to secure affordable accommodation amid rapidly rising rents and record-low vacancy rates of about 1 percent.
Last year’s surprisingly strong price growth across most of Australia’s markets has likely inspired more investors to look at property again. Capital growth is typically the primary goal of new investors, with yield seen as simply a way to help pay off the mortgage over time. However, yield becomes more important when interest rates are rising, and a 40 percent increase in rents since the pandemic means many city and regional markets are now delivering healthy yields above 5 percent.
Investors are also increasingly looking beyond their own neighbourhoods for more attractive property investment opportunities, typically in cheaper markets. Research by MCG Quantity Surveyors shows the average distance between landlords’ homes and their investments was 1,502km in the year to November 2023. Prior to the pandemic, that average distance was just 294km.
Western Australia provides an example of this trend, and is one of the hottest markets among out-of-area investors today. This follows a 15.6 percent lift in Perth’s median house price to $691,100 in 2023 – the highest capital gain of any capital city – along with an 8.2 percent increase in regional house values to a median $477,690 – the third highest gain among Australia’s regions, according to CoreLogic figures.
“WA and Perth have caught the eye of Eastern States investors,” said Joe White, president of the Real Estate Institute of Western Australia (REIWA). “They’re drawn by the value our market offers. Despite increases over the past few years, our property prices are much more affordable than the east coast and we’ve had significant rent price growth. This means properties have the potential for very good yields.”
Total returns including capital growth and rent on investment houses reached a staggering 20.8 percent in Perth last year, and 14.5 percent in regional areas, according to CoreLogic data.
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Australia’s housing affordability crisis is being fuelled by chronic undersupply, planning delays and rising development costs, as politicians continue to focus on the wrong solutions.
3 min
Australia’s housing crisis will not be solved by first-home buyer incentives or tax changes alone, with leading property figures warning governments must tackle supply constraints if affordability is to improve.
Speaking at the Kanebridge Quarterly Property Leadership Summit in Sydney last week, expert project marketing specialist Sam Elbanna, property investor and fund manager Paul Miron and property consultant Karla McNeice said that a lack of housing supply remained the central issue facing the market.
Elbanna, Director of CPM Realty with more than 30 years’ experience in project sales, argued that successive governments had focused too heavily on stimulating demand rather than addressing the barriers preventing new housing from being delivered.
“The misconception is that politicians think the way to solve the housing crisis is to drive demand,” he said.
“The reality is that’s not the way. This is a supply-side problem, and it needs to be solved on the supply side.”
Drawing on his experience in project sales, Elbanna said policies designed to help first-home buyers often had unintended consequences, pointing to previous grants that ultimately flowed through to higher property prices.
Instead, he said developers were facing increasing red tape, approval delays and rising costs, which were discouraging new housing supply.
“In the absence of stock, demand exceeds supply,” he said.
Miron, a Co-Founder and Fund Manager of Msquared Capital, said the housing debate had become overly focused on tax policy while overlooking broader structural issues.
He argued that affordability challenges stemmed from a combination of factors, including planning constraints, supply shortages, migration levels and interest rates.
“No-one can be 100 per cent certain on the real reason for property prices is going up,” he said.
“The reason why property prices are higher is a combination of interest rates, lack of supply, migration, vacancy rates and maybe taxes play a role.”
Miron was critical of recent federal housing policy changes, warning they could reduce the number of new homes being built and further constrain supply that was even highlighted in the budget.
He also highlighted the importance of the property sector to the broader economy, noting that residential real estate and related industries employed more than one million Australians.
McNeice, who advises developers on sales strategy and market intelligence, said understanding buyers had become increasingly important as affordability pressures intensified.
While affordability remained a major consideration, she said today’s buyers were focused on value rather than simply price.
“People are looking for value for money,” she said.
She said buyers were increasingly evaluating factors such as transport connections, walkability, nearby amenities and flexible living spaces that could accommodate changing family needs.
“What infrastructure is going on? Can I walk to the shops? Can I meet people at the local cafe?” she said.
The panel also discussed the mounting pressures facing developers, with Elbanna arguing that many projects become financially unviable from the moment a site is purchased.
“The viability of a development happens at the moment the site is bought,” he said.
He said rising construction costs, higher interest rates and overly optimistic feasibility assumptions had left some developers exposed as market conditions changed.
While acknowledging the growing number of smaller and first-time developers entering the market, Elbanna said property development required expertise across finance, construction, marketing and legal disciplines.
“It is actually a business that requires a level of expertise,” he said.
Looking ahead, the panel agreed opportunities remained in the market despite current challenges.
Miron said property should continue to be viewed as a long-term investment and cautioned against trying to time short-term market movements.
McNeice said success would increasingly depend on identifying projects that genuinely met changing buyer expectations.
Elbanna said affordable housing remained achievable, but developers needed to deliver more than just homes.
“We can provide affordable housing in this country,” he said.
“But we’ve got to wrap that affordable housing with the things that people want.”
As Australia’s housing affordability debate intensifies, the panellists agreed on one point: without a meaningful increase in housing supply, demand-side measures alone are unlikely to solve the nation’s property challenges.
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