Institutional Investment in Rental Housing in Australia: A Policy Framework and Two Models

Abstract

Housing affordability among low-to moderate-income private tenants has been declining over the past 10 years in Australia. This trend has intensified in spite of almost a decade of strong economic growth and low inflation in the Australian economy. An important factor here has been the continuing decline in the stock of rental housing at the low-rent end of the market, especially in the large cities like Sydney and Melbourne. This, in turn, has been associated with the peculiar pattern of private investment in Australian housing markets. Large professional and institutional investors have avoided the private rental sector, leaving a myriad of small individual investor-landlords as primary suppliers. Government housing, taxation and other policies have reinforced this pattern of development. This paper provides a conceptual framework for analysing these outcomes and develops an approach that identifies the key elements of public policy necessary to reduce barriers to widespread investment in the provision of affordable, low-cost rental housing. Two specific investment models are then outlined and analysed. The first model is based on renewed public borrowing from private investors. The second model introduces a stock exchange listed public company financed by a mix of government and private equity and corporate borrowings. The total net subsidy cost to government is identified in each model and sensitivity analysis outcomes noted.