Investor activity in Australia’s housing market has surged over the past 18 months, with the number of new loans to investors approaching levels not seen in nearly a decade, according to REA Group economist Angus Moore (pictured).
“The number of new loans going to investors has risen solidly in the past 18 months or so, following a quieter period from mid-2022 and into 2023 (after the RBA started raising rates),” Moore said in PropTrack’s Weekly Economist Update.
He noted that demand from investors has returned strongly as rental conditions remain tight across the country.
“Tight rental markets are likely encouraging this pick up investor activity. Rental availability remains very low, and rents are still growing quickly,” he said.
While the data on activity lags behind market conditions slightly, lower mortgage rates could further drive investor demand following recent rate cuts by the Reserve Bank.
“While the activity data is a little delayed, and so pre-dates the RBA rate cuts, lower mortgage rates may also boost investor activity,” Moore said.
Moore said that although lending has picked up across the board, the rise in investor demand has been more substantial than among owner-occupiers.
“Activity from non-investors has picked up too, but not to the same extent,” he said. “What this means is, investors are making up a very substantial share of new lending – close to as high as we’ve seen in a couple decades in some of the smaller states, and nationally about the highest since 2017.”
Victoria is the standout exception in this nationwide investor upswing. Investor demand in the state remains comparatively low, and investors represent a smaller proportion of new buyers than in other regions.
“Victoria is the key exception. Investor activity not picked up to the same extent as in other states, and so investors remain a smaller share of new buyers than is the case in other states,” Moore said.
Investor listings, however, are elevated in Victoria. Moore said the state currently has one of the highest rates of investor-driven sales activity.
“Investor sales are also a relatively high share of seller activity in Victoria at the moment, making up around three in ten listings – similar to Sydney, but higher than in other states,” he said.
The result of reduced investor buying and higher investor selling is a tightening rental supply in Victoria. Moore pointed to tenancy bond data as an indicator.
“The effect of fewer investor buyers and relatively high investor sales in Victoria is that the number of reported rental properties looks to be falling,” he said. “Data from the Victorian Residential Tenancies Bond Authority shows that the number of active bonds – a rough proxy for the number of occupied rental properties – has fallen in the past year.
“This fall is likely exacerbating limited rental availability and put pressure on rents.”
Despite these pressures, Melbourne’s rental market remains relatively affordable. While rents have risen, growth has been slower than in other states.
“That said, while Melbourne rents have been growing quickly, that growth is still not as strong as in other states, making Victoria Australia’s most affordable state for renters.”
Lower rent growth and policy changes—such as land tax increases—may be deterring investors, Moore said. But that could change as interest rates fall.
“That slower rent growth relative to other states may be part of the reason why investors haven’t been as interested in Victoria; policy changes around land tax may also be playing a role,” the REA Group economist said.
“But as rates fall, and with Melbourne home prices now lower than Adelaide and Brisbane, investors may start turning their attention back to Victoria.”
