How often are investment properties re-sold, and what impact does that have on the market? New research investigates the patterns and drivers behind Australia’s landlords.
A report ‘Modelling landlord behaviour and its impact on rental affordability: insights across two decades’, released this month by AHURI (Australian Housing and Urban Research Institute) has revealed that people aged 25-34 years are more likely to buy a rental property compared to other age groups. They are also more likely to sell it sooner.
AHURI’s research found that in 2021, 2.2 million Australians were landlords, nearly 9 per cent of the population. This is a slight increase from around 7 per cent in 2001.
An unexpected finding was that half of all residential property investments last for 2 years. However, as some landlords keep their investment properties for longer, the average investment period is nearly 4 years.
While 22 per cent of landlords sell after the first year, investments held for at least 5 years are much more likely to be held even longer, with around 28 per cent of landlords still holding the rental investment after 20 years. This suggests there are at least 2 distinct investment sub-sectors: short-term investors (up to 5 years) and long-term investors (5 years or more).
Landlords who buy or keep their rental investments longer tend to be in their late 40s or early 50s, are married, employed full-time, homeowners and have a higher income than the general population. They are also more likely to have post-school qualifications and lower personal mortgage costs.
Conversely, a person is more likely to sell their rental investment property if they are preparing to retire or a under 35, are experiencing marital separation or have high mortgage costs.
Higher rental yield reduces the odds of selling. A one percentage point increase in rental yield (i.e. income from rent as a proportion of the sale value of their property) reduces the odds of selling over time by 8 per cent.
The research ran 3 economic simulations and found that:
- halving the capital gains tax discount would negatively impact high-income landlords more than low-income landlords but have little impact on rental affordability;
- stage 3 tax cuts would have little effect on landlords keeping rental investments. Low-income tenants would benefit more than higher-income tenants;
- high interest rates negatively impact low-income landlords and low-income renters more than high-income landlords and tenants. Landlords’ costs would increase, low-income landlords would be more likely to sell and rents would rise, especially for low-income renters.
The report concluded that understanding what motivates landlords and their investment goals can help build a private rental sector that benefits more Australians. With the fast and ongoing growth of the private rental sector, this study makes a timely contribution to policy debates on the supply of rental housing by uncovering new evidence on patterns and drivers of rental property investment behaviour.