Mum and dad investors: Insights and predictions

What impact will proposed changes to tenancy laws have?

Mum and dad investors: Insights and predictions


By Jonathan Russell

The impact of mum and dad investors on the real estate market, and especially the rental market, is significant. Increasing costs and dwindling rental stock levels (particularly in Perth) prove how integral mum and dad investors are to a healthy rental pool. To learn more about the definition of a mum and dad investor, how tenancy law reforms could impact them, and what may be pushing them out, read on.

Who exactly are mum and dad investors?

Mum and dad investors are essentially non-professional, small-scale investors. The definition creates a distinction between Australians who invest in the property market versus Australians who invest in anything outside that market. In other words, “high rollers” tend to invest in the stock market. If you invest in the property market—and you are not a property developer—then you are a mum and dad investor.

The impact of mum and dad investors is significant. At the beginning of 2022, these types of investors were especially active in Queensland, South Australia, and New South Wales—which was welcome news for the property market. At the end of 2021, new investor loan commitments increased by 1.1% to near record levels, according to Australian Bureau of Statistics (ABS) data. It had been the 12th consecutive month that the value of new loan commitments increased, reaching the highest level since 2015.

How would reforms for tenancy laws affect mum and dad investors?

Some 61% of investors are willing to sell their homes if significant changes to residential tenancy laws are adopted, according to a survey of more than 7,000 investors conducted by Synergies Economic Consulting. Two of the more controversial proposals to reform the Residential Tenancies Act (1987) include eliminating the requirement for a tenant to get the property owner’s consent to make modifications to the property and removing the property owner’s right to end a tenancy unless on prescribed grounds, such as the owner wanting to sell the property or move back in, for instance.

This would impact mum and dad investors disproportionately since those investors with one or two properties make up over 90% of all rental owners. Some say removing these property owner rights will prevent Australians from investing in Western Australia properties in the future, and therefore add pressure to local governments—and taxpayers.

According to the Synergies report, the proposed reforms would, if passed, impose up to $105 million in increased rents on Western Australia’s tenants every year. It would also incur an estimated $143 million in higher property management costs each year.

The importance of mum and dad investors to Australia’s rental pool

Mum and dad property investors are seen as integral to a healthy rental pool in Australia. What is currently happening in Perth is a good example of why. Rental stock levels in the Western Australia capital have hit a 12-year low, with only 1,675 properties available to rent at the end of September, according to the Real Estate Institute of Western Australia (REIWA). That figure represents the lowest the stock has been since November 2010, when there were only 1,537 available.

And this is where mum and dad investors come in, according to REIWA president Damian Collins who said they ensure that rental prices remain affordable. “Our research shows that 72% of people who own investment properties only own one, and are most likely working as schoolteachers, nurses or other healthcare professionals,” Collins told Mortgage Professional Australia recently. “Any changes to WA’s tenancy laws that discourage investors from buying residential property in WA will make an already tough situation worse. That’s why REIWA is working hard to keep tenancy laws fair and equitable for all parties.”

Why do mum and dad investors exit the rental market?

Increasing costs for land tax, maintenance and rates are forcing mum and dad investors into a precarious position, with some considering a high-priced sale in a hot market. The real dilemma for most of these investors is whether a lump sum of money would be more secure in the longer term than a regular income rental.

According to the Real Estate Institute, mum and dad investors are starting to bail out of the market to earn massive capital gains. Often, investors want to sell due to increased land taxes, legislative changes, and escalating energy efficiency standards.

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