Heavy fines, pet bidding, and investor exodus to shake NSW rental market

According to the Real Estate Institute of NSW (REINSW), CEO Tim McKibbin, the rental reforms will further reduce housing supply and push landlords to rethink their investment strategies.

“People forget that landlords choose to invest their money in property; they have a litany of investment opportunities such as shares, superannuation, offshore, land banking, and will only choose residential properties if that is the best option for them,” he said.

“We are already seeing investors selling their properties or moving them into the holiday and short-term rental market.”

“Unfortunately, with every reform the government comes up with, they make it less and less attractive to be a landlord, and harder for tenants. That’s just the hard, cold reality of it,” McKibbins said.

From today, 19 May 2025, NSW landlords will be required to provide a valid reason to terminate any lease, with extended notice periods offering renters more security and time to relocate, or end the lease early if they secure a new home after receiving an eviction notice.

Rent increases will now be limited once per year across all lease types, whether fixed or periodic.

Real estate agents and landlords who fail to comply now face fines of up to $11,000 per offence, while agencies could be penalised up to $71,500, with the government Rental Taskforce focused on addressing serious violations.

Property owners and agents will also have to ensure tenants have a fee-free rent payment option, like direct bank transfer, and tenants can no longer be required to pay for their background checks.

The state government is also developing a new portable rental bonds scheme to be launched at the end of the year to allow eligible tenants to transfer their bond between properties, as well as a new “rent check” website for tenants to compare rental prices in their areas.

Additionally, the new rental reform also prohibits landlords from refusing up to four pets within the property, with automatic approval if owners do not respond to pet applications within 21 days.

Under the new regulations, landlords can only refuse pets based on specific grounds, including inadequate fencing, potential damage cost, and specific conditions for open space and animal care.

McKibbin said that desperate tenants have turned to “pet bidding”, offering pet concessions to stand out in the market.

“With landlords now forced to accept up to four animals in their property, it opens up another opportunity for tenants to distinguish themselves by offering to forego their right to have pets,” he said.

McKibbin said that while landlords cannot remove a tenant’s right to keep up to four pets, prospective tenants may voluntarily state in writing that they forgo their right to have a pet to strengthen their application.

“This would presumably occur in two ways. One, by foregoing the right to have four pets, and reducing that to three or less. Or two, by foregoing their right to have a pet entirely.

“We’re seeing this creativity because people are trying to differentiate themselves from the market, the competition in the market, and they know that many landlords would favour a tenant that didn’t have a pet.”

“Many tenants think that it may give them a better chance of securing the property,” McKibbin said.

Additionally, he said the peak body has been bracing for a tighter rental market as more investors will sell their properties, similarly to what has happened in the Victorian market.

“In Victoria, the lustre has clearly worn off the law requiring investors to allow pets in their properties. Once again, politically populist policies harm those government is attempting to win favour with more than anyone else,” McKibbin said.

“The Victorian government’s own research shows that the primary reason for a no-fault notice to vacate to be issued to a renter in 2023–24 was because the property was being sold. This occurred in 53 per cent of cases.

“Obviously, forcing investors to accept pets and removing their right to recover possession of their property has driven them from the market. It’s tenants who suffer.”

In NSW, the latest institute vacancy rate data showed that Sydney’s rate dropped by 0.4 per cent in April to 1.6 per cent, when a “healthy” vacancy rate should sit between 3 per cent and 6 per cent.

Additionally, ABS data showed that the number of new investor loans across the state fell by over 2,500 in the March quarter compared to the previous quarter.

The decline in new investment loans aligns with a drop of 702 rental bonds recorded by Rental Bonds Online in April, indicating a decrease in the number of rental properties in NSW.

“This combination of distressing data highlights just how far the rental crisis has plummeted,” McKibbin said.

According to McKibbin, to reduce the rental crisis in NSW, the government should establish reforms that protect both renters and investors.

“In the interests of restoring health to the rental market, we must establish a framework in which tenants’ rights are protected and in which residential investment is encouraged, as this is an essential part of the solution,” he said.

“The loss of investment in residential property is having a disastrous impact on renters so we urgently need policies which stop the bleeding and which will stimulate a recovery in investment.”

“The rental crisis may have reached a new low, but it’s not too late to try to turn it around,” McKibbin concluded.

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