The Brisbane City Council has given short-term rental owners an ultimatum in a bid to solve the rental crisis — list their properties in the longer-term rental market or face a 50% rate increase.

PRD Real Estate chief economist Dr Diaswati Mardiasmo said this move is “quite significant” and “drastic” to address the rental shortage in Brisbane.

“Another aspect of the 50% rate increase is that it will rely on self-reporting, community participation and online research to identify affected properties — I am not entirely convinced that this will work optimally as a blanket approach. Perhaps in certain suburbs where short term stays are common, but how many are there in Brisbane?” she told Your Investment Property.

Latest figures from SQM Research showed that Brisbane’s vacancy rate was at 0.7% in May, down from last year’s 1.3%.

“Overall, it is a strong drastic measure to try and solve the low vacancy rates in Brisbane, but as per usual the devil is in the detail,” Dr Mardiasmo said.

There are currently 3,600 homes listed on short-term accommodation sites in the Greater Brisbane area, including in councils outside of Brisbane LGA.

“The question is, how many of those are in Brisbane LGA, and how many are entire properties? What type of properties? And where are these properties located, are they in areas that have a large imbalance between supply and rental demand?” Dr Mardiasmo said.

How will the 50% council rate hike impact investors

Dr Mardiasmo said the hike will impact the financial situation of investors differently.

“Whether its property type or location, any changes in costs will have a different impact on a case-by-case basis,” she said.

“With the current increase in rental prices and the number of international students arriving into Brisbane, which all adds to demand, the possibility of higher rents is high — thus potentially off-setting costs.”

Dr Mardiasmo said the impact will ultimately depend on the balance between what would the new rates costs be versus rental income, whether in a “normal” long-term setting or in a short-term accommodation setting.

“If the rental property proves to be no longer financially viable, regardless of what setting, investors may sell, which defeats the purpose of trying to increase the number of rentals available,” she said.

“Grossly unfair”

Metropole Property Group CEO Michael Yardney said while he can understand the rationale of the move, he thinks the decision to impose a 50% hike on rates is “grossly unfair”.

“Property investors have taken a commercial risk purchasing property, taking on a loan, and paying the outgoings and for the council to unilaterally change the rules of the game after they purchased the property is unfair,” he said.

Mr Yardney said the council did not offer a rebate to property investors when they endured long vacant periods without income when higher vacancy rates were higher.

“It’s a bit like telling a restaurant owner that they can only sell lattes even though they make a smaller margin and taking a portion of their profits is they sell pasta or pizzas,” he said.

Propertyology head of research Simon Pressley said the move is a “poor” decision that would do nothing to improve Brisbane’s rental supply.

“It may prompt some owners to sell. No one likes being told what they can and can’t do with something they’ve gone to a lot of effort and sacrifice to earn,” he told Your Investment Property.

“I guarantee this money-grabbing policy will not help Brisbane businesses that depend on tourism and retail trade. More and more consumers prefer the wide variety of accommodation options through Airbnb and the likes instead of the old-fashioned hotel option.”

Mr Pressley said the move “squeezes the last drop of juice out of the orange”.

“Apparently it no longer matters who the legal owner of an asset is, if you don't use the asset the way that this big-spending local government wants you to use it they will tax you an extra 50%,” he said.

“This constant squeezing has resulted in reduced participation by new property investors and caused some former investors to sell.”

Vacancy rates at 16-year low

Vacancy levels across Australia are at their 16-year low and this could be due to a surge in investors selling their rental properties to homeowners over the past two years.

Latest figures from SQM Research showed a decline in national vacancy rate to 1% in May, down from 1.8% last year and 1.1% from the previous month.

Most states and territories reported declines, while a few maintained their vacancy levels from last month.

SQM Research managing director Louis Christopher said there are no telling signs for an end of the tight rental conditions.

“The national rental crisis continues unabated and as a result, asking rents are skyrocketing — Sydney combined rents have risen by 17.5% just over the past 12 months. Brisbane is up by 18.6% for the same period. Melbourne up by 14.8%,” he said.

Mr Christopher said the reductions in household size, rise in immigration levels, and the short-term rentals eating into longer-term lease availability are all contributing to the tight conditions in the market.

Grant Foley Property director and buyers’ agent Grant Foley said one of the main factors that has contributed to the critical undersupply are the volume of investment property sales since the start of the pandemic.

“Many investors choose to take advantage of the rising market conditions to offload their holdings, especially in locations where there had been negligible price growth in the years before,” he said.

Mr Foley said this has been the case in parts of Greater Brisbane, where many investors had opted to sell amid the boomtime after experiencing underwhelming capital growth for many years.

This was also apparent in Sydney, where investors used the strong market conditions to sell down their portfolios.

“A number of investment properties in Sydney, especially houses in more affluent areas, were sold to upgrading homebuyers, which means that it is nearly impossible for families to find a house to rent in these locations at present,” Mr Foley said.

“We are expecting overseas migration to soar over coming years, compounding the rental crisis, especially in Sydney, which is where the majority of migrants ultimately arrive.”

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Photo by @concorth on Unsplash.