Super fund fix for housing supply could increase rents

The plan to solve the housing crisis by bringing in super funds could backfire, with warnings of potential rent hikes.

A rental market dominated by big funds may just push rents higher. Picture: iStock

New moves to bring big super funds into the housing market could push rents higher, an economist warns.

With the majority of rental housing stock currently held by mum and dad investors, a string of initiatives from the Albanese government designed to encourage big super funds to invest could unlock $8.7bn for housing development, according to the Property Council.

But Nerida Conisbee, chief economist at the Ray White Group, tells The Australian’s The Money Puzzle podcast, she has serious concerns about the realities of multi-billion funds playing in the same space as everyday investors.

Conisbee says mum and dad investors are willing to put up with very low returns from housing in exchange for long-term capital gains, but big super funds will not accept the same set of conditions.

“If you look at an institutional investor, if they build an apartment building or they buy a whole suburb – which has happened in the US – they may quite substantially push up rents to be able to generate a decent return,” she says.

“So I think there is a perception in Australia that if we get this institutional investment in, it will calm rents and it will make it cheaper or better for renters. I don’t think that’s necessarily the case.”

With house prices currently rising at around 6 per cent a year nationwide, most everyday investors are willing to endure very low yields from investment property with an eye to making a major capital gain in the future.

Rental yields in the major cities at 2 to 3 per cent are below the risk-free cash rate, which is sitting at 3.6 per cent.

One of the government’s first moves to unlock big super funds for housing came in recent days with regulator, the Australian Securities and Investments Commission, announcing it would review disclosure rules that funds have claimed reduce their ability to explore housing opportunities.

Large institutional funds directly owning residential properties have caused unrest across the US and in Europe where US-based ‘vulture funds’ have prompted strong opposition when they took advantage of former downturns in the housing market.

One of the world’s biggest investors in housing, Blackstone, faced claims from the United Nations over exacerbating the global housing crisis through aggressive rental practices and fees.

It was reported Blackstone was the biggest single owner of residential property in Madrid, with the New York-based fund holding almost 2000 apartments across the Spanish capital.

Blackstone is best known in Australia for its $24 billion deal to buy local data centre company AirtTrunk and its buyout of James Packer’s Crown Resorts in 2022.

Conisbee says big super funds unleashed on a tight property market could quickly price out traditional buyers.

“These are the kind of uncomfortable question we have around super and housing,” she says.

In a recent industry report, Conisbee wrote: ‘Growing appetite for corporate solutions deserves careful consideration. Following the Economic Roundtable, the government announced plans to work with the corporate watchdog to allow super funds to invest more in housing, potentially delivering 35,000 properties. Alongside this, the government is reviewing superannuation rules – including the performance test and RG97 reporting standards – to enable funds to channel more long-term capital into housing and clean energy projects.’

She added that while some criticise individual investors as greedy, “institutional ownership doesn’t necessarily solve this problem. Large institutions are equally profit-motivated and often require higher returns than individual investors to justify the investment to their stakeholders.

Some institutional ownership can diversify the rental market and bring professional management standards, but the scale matters enormously.”

Conisbee argues that the US experience shows what happens when corporate ownership goes too far.

“Large companies now own tens of thousands of properties, pricing out traditional homebuyers and creating a permanent renter class,” she says. “The risk is that developments optimised for institutional returns rather than community needs could replicate these problems locally.”

Instead Consibee thinks the focus should shift to construction methods.

“The real opportunity continues to lie in transforming construction methods - something that doesn’t require relaxing environmental standards or planning rules.”