the last time NG was last restricted, investors did not bail out and even if they did who would they sell to ?
You are missing the point. You have the investors that bail (remember 90% of investors only have one IP, many just to 'save tax'), then you have the investors who just don't buy. You are not going to buy an IP to 'save tax' if there's no tax to save, now are you? So......this reduces the pool of rental properties available. Those that bail will sell to owner occupiers or for a loss to more cashed up investors.
other investors or former renters or owners, the demand supply equation remains the same and there is no upward pressure or rents.
Get real! Of course this changes the supply/demand equation. If there are less investors buying properties, then there will be less properties available for rent. Yes, existing stock may reduce in price, so there may be more people buying to occupy, but not everyone can, or will, buy their own place and there will always be a large proportion of people needing rental accommodation.
Changing policy on NG does not stop immigration either, so the population continues to expand making it necessary to build more stock. So, as the new stock comes on the market, who will buy it? Owner occupiers, of course, but what about the never ending amount of investors buying to 'save tax'? Well, of course, they're not buying, are they?
Over a course of years, this puts a lot of upward pressure on rents, because there are move people needing to rent. Simple!
The first ramification will be a lot of would-be investors are not going to invest, and lot of current investors will not go again, and/or offload their neg geared property due to cashflow difficulties.
Exactly!
This might trigger a massive oversupply of cheap property on the market, which may trigger a slump in prices.
This will be good in the short term for cashed up investors who can support the decreased cashflow, and FHB's looking for their first place, possibly.
The possible bad ramification will be a shortage of rental properties available and rents will go up. This may then trigger another round of investor demand, but will it be enough?
The thing to note is that all this won't be immediate. It will take years for the full ramifications to filter through.