Landlords sell to reap capital gains, not avoid rental reforms: study

Landlords sell their investment properties for lucrative capital gains, rather than dissatisfaction with tenancy law reforms, new research reveals.

Tenancy law reforms were at the bottom of the list of reasons why investors sold their properties, research by the Australia Housing and Urban Research Institute found.

The research also found no evidence of tenancy reforms in NSW in 2010 affecting the supply of rental properties in the state. The same number of rentals were added to the private rental sector after the changes as the previous trend, and ever fewer than expected exited.

In Victoria, slightly fewer rentals were added to the sector, but there was no effect on the number of properties exiting after the state’s tenancy law review in 2015.

The research paper examined the factors that influence landlords’ rental investment decisions by analysing rental bonds data after past rental reforms in NSW and Victoria as well as a survey of property investors.

It did not cover the most recent Victorian rental reforms which allow picture hooks, strengthen the rights of pet owners and mandate fixed heaters. Agents reported some investors inquired about selling after facing a high vacancy rate earlier in the pandemic and in the wake of a house price boom.

The paper’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 improvements to tenancy laws are a disincentive for landlords to invest in rental properties.

“We found there was no evidence of the disinvestment effect. The hard graft of linking millions of bond records gave us a new view into just how often rental properties enter and exit,” Martin said.

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.

He said the sheer turnover of rental properties in the major capitals highlighted that current tenancy laws work in landlords’ favour, rather than tenants.

“The churn of properties through the private rental sector is huge. As investors churn in and out of rentals, renters get churned in and out of their housing and that is a basic problem,” Martin said.

“Our tenancy laws really accommodate the dynamic nature of rental property investment, that is, landlords frequently buying in and selling out or using it for something else.”

He said tenancy laws were so heavily in favour of landlords that it came at a cost to renters rather than protecting them. For example, no-grounds evictions are still an “untouchable” feature of tenancy legislation in several states and allow landlords to terminate a tenant’s lease for no reason.

“It’s at the expense of renters. The expense is financial, logistical, and emotional,” Martin said.

“It’s this chronically insecure, turbulent housing that landlords invest in and disinvest in all the time as it suits them.”

Half of the surveyed investors said they sold their investment properties because it was a good time to realise capital gains.

Meanwhile, 47 per cent said they wanted money for another investment, 36 per cent said the rental income was insufficient and just 14 per cent said dissatisfaction with tenancies laws was very important in their decision to sell.

He said the private rental sector was so lucrative for landlords that many sell and choose as they please as evident in the turnover of bonds data and their survey results.

“The disinvestment claim comes out as an argument against tenancy law reform. But the point we’re making, and the evidence shows, is landlords are disinvesting all the way to the bank all the time.

”They are selling properties because it suits them and plenty of them get back into property again also because it suits them too.“

Martin said the real estate lobby was triggering the alarm on tenancy law reforms as a disincentive for landlords when macroprudential regulations, such as limiting investor loans, had a greater effect.

Martin suggested stronger and more cohesive tenancy regulation across the states and territories would set higher standards for renters and attract better landlords.

“We should be pushing our law reform harder … To lift standards and to drive the unwilling and the incompetent out of the sector and to make room for more owner occupiers and a better rental housing providers.”