Bank dismisses threat of big rent rises

Westpac expects house price inflation to flatten over the rest of this year, with ‘‘moderate’’ falls over the next few years as longer-term interest rates rise.

But the bank’s economists say renters can stop worrying about the prospect of rents rising significantly, despite threats from disgruntled landlords.

Acting chief economist Michael Gordon said some of those landlords might be wise to take the opportunity to sell up to their tenants now.

‘‘The planned changes to the tax treatment of property investors are perhaps the most meaningful intervention into the housing market in decades,’’ Gordon said. ‘‘The removal of interest deductibility will mean a higher tax bill for landlords. This has led to speculation (or accusations) that they will try to claw this back through big increases in rents.

‘‘The reality is that, even in hindsight, it’s hard to say how much policy changes contribute to rent increases. Rents rise over time anyway, and more so in areas where underlying housing shortages are worsening.

‘‘We come down on the side of no big increase in rents.’’

Some investors would leave the market, he said.

‘‘If they exit the property market, there are enough homebuyers and unleveraged investors to take their place. In the short run this will mean some reshuffling, as investors sell to other investors or to homebuyers, and as tenants move or buy.

‘‘Don’t be fooled, tax changes have no effect on the number of occupants or the number of dwellings.

‘‘Landlords might get a better deal by offering to sell to their tenants, than by trying to push through large rent hikes,’’ Gordon said.

‘‘At current mortgage rates the average homebuyer’s willingness to pay is, if not as high as sellers might have hoped for, then probably not far below recent sale prices.

‘‘The biggest affordability hurdle for first-time buyers has been saving up a large enough deposit, and that’s easier to do when prices aren’t constantly running away on you.’’

The housing policy changes would slow economic recovery, Gordon said. ‘‘The upshot is a slower pace of recovery from the Covid-19 shock, which in turn will delay the Reserve Bank’s progress towards its inflation and employment goals.’’

Westpac forecasts the Reserve Bank would leave the official cash rate (OCR) unchanged next week at 0.25 per cent.

‘‘We did consider the case for further easing. The Reserve Bank has emphasised that it is both willing and able to do more, including taking the OCR below zero, if conditions warrant. Our view is that OCR cuts would require evidence of a sudden lurch lower in consumer spending or homebuilding.

‘‘If it’s more the case of a slower recovery, we suspect that patience and a steady hand would be more appropriate. We now expect no OCR hikes until early 2025,’’ he said.

Previously, Westpac said it had expected no rises until 2024.