The COVID-19 pandemic brought unprecedented challenges to the Australian property market. In the initial stages, restrictions on movement and economic uncertainty led to a temporary slowdown in property transactions. However, with the subsequent easing of restrictions with migrants beginning to return, inflation, fluctuations in interest rates, and various government initiatives, the market began to regain momentum which consequently led to a mismatch of supply and demand that is slow to find equilibrium.
The State of Rental Affordability In Australia
The mismatch between supply and demand remains the primary factor behind the growing rent value in Australia’s property market. This unusually strong pace of growth in rent began in late 2020 and until the 30th of April this year. The chart below shows an increase of $115 on the estimated median weekly rent value across Australian Dwelling.
Corelogic’s Research Director, Tin Lawless associates this positive trend with a persistently low level of available housing supply in contrary with the rising demand for housing.
“Advertised listings trended lower through May with roughly 1,800 fewer capital city homes advertised for sale relative to the end of April. Inventory levels are -15.3% lower than they were at the same time last year and -24.4% below the previous five-year average for this time of year,” he said.
Has the Recent Increase in Rent Values made the Australian Property Market Unaffordable?
The latest housing affordability report from ANZ CoreLogic has unveiled some key findings. According to the report, on a national level, the average household with a median income would need to allocate 30.8 percent of their income to cover the costs of a new rental lease. However, for households with lower income levels and renting at more affordable rates, a significant 51.6 percent of their income would be necessary to meet rental obligations.
These findings indicate that low-income households have been disproportionately affected by the soaring costs of rental properties in recent years. Using the 30/40 rule as an indicator, this suggests extreme housing stress.
Rental Supply vs. Demand
In April 2023, CoreLogic reported a total of 91,869 rental listings available on the market, a significant decrease from the peak of 181,493 listings recorded in May 2020. This represents a decline of -38.1% compared to the average of 148,259 listings observed in the previous decade. Furthermore, the national rental vacancy rate for the month stood at 1.1%, which is below the average vacancy rate of 3.0% over the past ten years.
The chart below provides an overview of the declining levels of rental stock throughout the country pre and post-pandemic period.
The decrease in rental supply stems from the growing interest rates as influenced by inflation. The inflation levels have led to obstacles in the construction industry, causing bottlenecks in the availability of rental properties. Higher interest rates, on the other note, is dependent on the inflation rate. How far and how fast the RBA tightens interest rates largely depends on core inflation. This resulted in lesser demand for new investment properties.
The upswing in the property market can be described by two distinct surges in demand:
- Change in Housing Preferences
One significant shift observed during the pandemic was a move towards living with fewer individuals. The Reserve Bank of Australia (RBA) has observed a decrease in group households in 2020, which subsequently result in a lower average number of people per household. This shift led to an estimated increase of 120,000 additional households due to domestic demand alone.
On the other end of the spectrum, migrants return with a bang, adding more pressure to the Australian property market. The patterns of overseas migration indicate that the demand for rental properties will remain concentrated in the Melbourne and Sydney markets. However, the expensive regional markets are likely to face affordability constraints, leading to a potential plateau in rental prices in those areas.
Is it a good time to buy?
Given that we’re in a landlord’s market and things are unlikely to change anytime soon, many property investors are in a strong position right now. (If your financial circumstances allow).
Want to buy an investment property? High Income Property can help you buy a positively geared property in a location with long-term growth prospects. To discuss your options, schedule an online meeting or (02) 8007 4001