Victoria is experiencing the sharpest fall in rental stock since record keeping began in 1999, suggesting an investor sell-off is gaining pace.

The number of active rental bonds (a proxy for the number of rental properties in a market) fell from a little over 676,400 in June last year to 654,700 this year – suggesting there were 21,700 fewer rentals in the market.

The state has only ever recorded two quarters of rental bond falls, and both occurred in 2024.

The speed of rental stock loss also appeared to be increasing, with the total number of rental bonds dropping 1.3 per cent in the three months to May, and 3.2 per cent in the three months to June.

The new data, released by the Department of Families, Fairness and Housing, supports a trend identified in the recently-released Property Investment Professionals of Australia (PIPA) 2024 Annual Investor Sentiment Survey.

The survey described a "sell-off of investment properties around the nation" that was "continuing unabated" and "fuelling fears of an even tighter rental market".

The outlook may be grim for investors, but home owners appeared to be benefiting, snapping up 65 per cent of the properties investors sold, according to PIPA.

First homebuyers in Melbourne have also enjoyed months of falling prices, while most of the rest of the country has experienced continued increases.

However, the survey's 1288 respondents declared Victoria to be the "least accommodating state or territory for property investors", and Victoria and Melbourne were found to have some of the highest proportions of investors selling up.

In Melbourne, roughly 22 per cent of investors surveyed had sold at least one rental in the past year, the second highest after Brisbane.

When it came to investors selling in regional areas, Victoria also had the second highest rate, with just over 9 per cent of investors selling, just below NSW, where the figure sat at just over 10 per cent.

PIPA Victoria board director Cate Bakos said legislative changes around minimum rental standards and increased land taxes were driving investors from the state.

She said real estate agents were also reporting a higher percentage of sellers being investors.

Rents plateauing despite falling stock

CoreLogic head of research Tim Lawless labelled falls in rental bonds "significant and surprising" but noted they had not brought the expected rent increases.

He said falling demand from reduced migration, increases in the average household size, and increased house completions appeared to be keeping a lid on rents.

In fact, CoreLogic rental asking price data showed rental growth was at its lowest point in three years.

Rental asking prices for units in Greater Melbourne increased 0.5 per cent in the three months to September, while rental asking prices for houses grew 0.2 per cent.

Both were less than half the increase in the three months before, and well down from the 2-3 per cent quarterly increase landlords had enjoyed since the pandemic.

"Clearly the trend in rental growth is slowing down," Mr Lawless said.

He too had noted a turnaround in investor sentiment.

The uptick in building completions was shown in Australian Bureau of Statistics (ABS) data, which shows 10,954 houses were completed in Victoria in the June quarter – up 35 per cent on the same period last year.

Unit completions reached 5,806 in the same period, up 43 per cent on the year before.

"Completions have picked up substantially," Mr Lawless said.

Despite rents appearing to plateau, he said the market should be mindful of further falls in rental stock, because once stocks started falling, it would take a long time to turn around.

"If we were starting to see rental price pressures picking up as we were seeing fewer rental properties, that would be a bit of a signpost that the Melbourne rental market was a little bit broken.

"But at the moment it looks like it's managing rental pressures quite well in the face of fewer rental properties."

Investors 'voting with their feet and their wallets'

Property Investors Council of Australia chair Ben Kingsley found rental bond falls more concerning.

"It should be an alarm signal for the government that the investors are basically voting with their feet and their wallets, and they are tapping out."

Kingsley said the fall was driven by four main factors: investors selling up due to high interest rates, increased land taxes, tenancy reforms that ended no-fault evictions, and investors who had been in the market for a long time who were now cashing out.

"The bleeding obvious thing is the governments severely overreached on the reform agenda," he said.

"The unintended consequences have been that effectively the investors are moving on."

He expected the rate of rental bond falls in Victoria to continue.

"We have never seen this before in Victoria, since these records have been kept this situation has never occurred."

He said the only circuit breaker that would end the trend quickly would be an interest rate cut.