Why there is little relief in sight for Australia’s crazy rental markets
Sometimes, the media can be sensationalist with the way they report property news. But the media is spot on to describe Australia’s rental markets as crazy.
What’s happening with our rental markets is unlike anything we’ve seen for many years, with tenants struggling to find accommodation and rental rates soaring.
The key to understanding the situation is to look at rental vacancies.
In August 2021, there were 58,856 vacant rental properties in Australia, according to SQM Research. By August 2022, that had plummeted to just 36,741.
At the same time, there was a corresponding reduction in the ‘vacancy rate’, or the share of empty rental properties, from 1.6% to 0.9%.
To put that in context, anything above 3% is regarded as a tenant’s market while anything below 2% is regarded as a landlord’s market (with anything in between regarded as a balanced market). So a change from 1.6% to 0.9% reflects a change from landlords holding the upper hand to landlords holding a position of dominance. That means:
- Tenants are competing fiercely for rental properties
- Landlords are finding it easy to fill vacancies
- That’s allowing them to choose high-quality tenants
- It’s also allowing them to increase rental rates
Over the year to 20 September, median rents increased 13.4% for houses and 12.3% for units, according to SQM Research. As you can see in the graph, that sort of increase is very unusual.
Rental supply v demand
In any sort of market – whether for oil, wheat or property – there’s an interrelationship between supply and demand:
- When supply goes up, demand goes down
- When supply goes down, demand goes up
In the rental market, as we’ve seen, supply has gone down, which is why demand has gone up.
This one-sided rental market is unlikely to return to balance anytime soon, because, amazingly, supply is trending down while demand is trending up.
In the year to July (the most recent month for which we have data), residential building approvals fell 25.9%, according to the Australian Bureau of Statistics. That means fewer homes will be built in the future. And we’ve all heard the news about construction companies struggling to source supplies and going bankrupt – which will also lead to fewer new home builds. So less new supply will come on board.
Meanwhile, now that the international border has reopened, foreign students are flooding back to Australia. Immigrants are also returning to Australia – and the federal government recently increased the permanent migration intake from 160,000 places per year to a record 195,000. The vast majority of those students and immigrants will berenters, which is why demand for rental accommodation is set to increase.
Most investors believe now is 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.
That’s also why a lot of investors are thinking about buying in the near future.
The PIPA Annual Investor Sentiment Survey 2022, which was conducted in August, found that 59% of investors believed now was a good time to invest in residential property, while 19% felt it wasn’t and 22% were unsure.
Want to take advantage of the current rental market by buying a quality rental property? High Income Property can help. To discuss your options, schedule an online meeting or call (02) 8007 4001.