Kim Macdonald: Landlords think twice whether rent hike is truly worth it

Just because you can doesn’t mean you should.

Landlords, I’m looking at you.

Most of us abide by this rule when facing the endless possibilities of life, but there are plenty of greedy landlords without an ounce of prudence these days.

Some are simply price gouging, charging through the roof for rent on some substandard properties in lower socio-economic areas.

A case in point is a four-bedroom, one-bathroom home in the foothills, which does not appear to have been renovated since it was built 50 years ago and is currently advertised for $750 per week.

The same property was advertised for only $300 per week in 2019.

According to PropTrack, Perth rents have risen more than any other capital city — by $240 per week — since the pandemic hit in March 2020, which is an extra 67 per cent.

Of course, not every landlord is price gouging.

Many responsible landlords have lifted rents by fair amounts in recent years, reflecting their extra mortgage costs and the fact local leases were undervalued for several years. But it is concerning that experts predict another massive dose of rental pain in pockets of Perth this year.

According to the Suburbtrends report, by the end of this year, landlords in some pockets of the State will charge an extra 30 per cent for houses each week.

The one-third hikes, worth about $200 extra each week, are forecast to hit about 24 suburbs in the Dardanup, Helena Valley, Mundjiong, and Glen Forrest areas.

According to the report, 450 more suburbs across the State — including about 75 in the metropolitan area — are likely to increase rates by 20 to 28 per cent by December.

However, landlords need to consider the cost versus the benefit of such an increase.

Assuming anyone with an investment property earns $120,000 to $180,000 per year, they will lose 37 per cent of a $200 rental increase to the taxman, given that rent is taxed as ordinary income at the landlord’s marginal tax rate.

About 7.5 per cent of the additional rent will go towards the real estate agent’s property management fees.

This means that after forcing the tenants to pay an extra $10,400 on top of their existing rent, the landlord walks away with only $5,800 extra for the year. If the landlord is on the top tax rate, they will get less than $5000 extra.

Is it worth it? For an amount that could finance a family trip to Bali or a slightly flashier car?

The Federal Government is undoubtedly happy for the situation to continue, given that it gets to skim the cream from the top, but property investors need to think twice about whether it is a necessary pain.

I believe our future grandchildren will one day study the great post-pandemic cost of living crisis of the 2020s.

They might ask you if you were on the right side of history.

Landlords, what will you say?