Why so many landlords are forced to sell their properties

Some Australian landlords are churning through rental properties, especially if they are too cash-strapped to hang onto them or their circumstances change after purchase.

One in five landlords sold within a year of purchase, and as many as half within two years, a new study from Curtin University researchers says, leaving many tenants scrambling to find somewhere to live in a tight rental market.

Some property investors own for only a short time.Credit: Joe Armao

The research by the Australian Housing and Urban Research Institute, Modelling landlord behaviour and its impact on rental affordability: Insights across two decades, was released on Wednesday.

It focused on data from the Household, Income and Labour Dynamics in Australia survey and took in figures from CoreLogic and real estate agencies between 2001 and 2021. Of landlords studied, the median rental investment period was two years, and the mean was 3.9 years.

But hold periods varied widely, as about 28 per cent of investments were still held after 20 years.

The churn rate in the study was higher than separate figures from research house CoreLogic, which found the median hold time for investment properties was a median nine years and 7 per cent sold within two years. But CoreLogic’s methodology also included corporate vehicles that owned investment properties, and investors who held for well over 20 years.

Report lead author Curtin University’s Dr Ranjodh Singh said although a number of landlords were selling up quickly, other owners with high incomes and good advice were able to hang onto properties in the face of rising mortgage and other costs.

Those with lower incomes, who had a large mortgage or life changes like separating from a partner or getting divorced often found themselves in a situation where they had to sell.

Some were being caught out by the extra costs of expensive rental repairs or more expensive land taxes that had not been budgeted for.

“Landlords who are ill positioned to retain their rental investments for long can disrupt the supply of private rental housing, with potentially negative impacts on tenant affordability and security,” Singh said.

Quick sales were not only leaving tenants scrambling to find another home to live in; they were also being forced to pay higher rents. Investment properties selling for a better price meant landlords were increasing rents as expectations changed.

Education of investors to the risks and rewards of investing, and the sacrifices required, could be the key to reducing the investment property churn, Singh said.

Stricter bank lending criteria was needed to ensure owners could afford to repay their investment loans with their earnings, he said.

“Education plays a huge role in this because the one thing they all talk about is that we need to have the knowledge base before we invest,” Singh said. “Those that do hold on to their properties sometimes have a network of investors, and they can bounce ideas off each other or family members who have done it and know what to do.”

National Association of Tenants Organisations representative Leo Patterson Ross agreed more education was needed for prospective landlords, but he also called for a change in attitude to ownership.

Governments should encourage long-term property ownership, Patterson Ross said, rather than quick flips.

“The reality of investing in property is that it’s relatively short term and landlords are being driven by higher prices and tax incentives to sell because they get preferential treatment in tax ,” he said.

A business registration scheme was needed for property investors in Australia, similar to those in the UK, that would enable better and up-to-date tracking of the market, Patterson Ross said.

It would also allow tenants to check whether they were being scammed by unscrupulous operators or those posing as landlords trying to rent out properties they didn’t own.

Even though their methodologies differed, CoreLogic’s Head of Australian Research Eliza Owen agreed rental market stability was being affected by quick sales.

Hold times of investment properties were being affected by market conditions, she said. When the market was booming, investors were selling to cash in, while they held on for longer when the market was in a downturn, hoping to sell when property prices improved.

Interest rates were also having an impact, especially on investors who were paying out more when interest rates were high.

“We did notice an increase in short-term holds of investment properties when there were rapid increases in interest rates from 2022, after the interest rate cuts during COVID,” Owen said.