The price to rent a house could increase by as much as $10,000 in parts of Australia this year. And the finish line for this sharp rising national rental trend is nowhere in sight.
In the 2022 calendar year, Propertyology is forecasting that 59 locations will produce an increase in the advertised price to rent a standard house by between $5,000 and $10,000.
In alphabetical order, they are Adelaide, Airlie Beach, Albany, Albury, Ballina, Batemans Bay, Bathurst, Bendigo, Bowral, Brisbane, Bundaberg, Burnie, Busselton, Cairns, Canberra, Coffs Harbour, Dubbo, Esperance, Geelong, Geraldton, Gladstone, Gold Coast, Gosford, Goulburn, Gympie, Hervey Bay, Kiama, Kempsey, Kingscliff, Launceston, Lismore, Lorne, Mackay, Maitland, Maryborough, Mount Barker, Mount Gambier, Mornington Peninsula, Mudgee, Newcastle, Noosa, Orange, Perth, Port Macquarie, Rockhampton, Sunshine Coast, Toowoomba, Torquay, Townsville, Traralgon, Wagga, Wangaratta, Warrnambool, Warragul, Warwick, Wodonga, Wollongong, Yamba and Yeppoon.
PAIN AHEAD
It’s almost impossible for people to find acceptable rental accommodation in as many as 180 out of Australia’s 200+ cities and towns. Rental markets are as tight a mouse in a matchbox.
In every corner of this big country other than Sydney and Melbourne, the competition among tenants who were searching for rental accommodation over the last few years has already produced a big increase in the price of weekly rents.
Some of the biggest rental increases were in, but not limited to, Ballina NSW, Busselton WA, Cairns QLD, Gold Coast QLD, Mandurah WA, Moreton Bay (Brisbane north), Orange NSW, Port Macquarie NSW and Sunshine Coast QLD.
People move homes every year. Growing families, people pursuing a career progression, lifestyle upgraders, relationship splits, forced to move out because the landlord is selling… But insufficient rental supply has made it very stressful (if not impossible) for anyone trying to move now.
The pain caused by the dire shortage of rental accommodation in this country extends well beyond the finances and emotions of tenants.
Australian businesses are collectively breaking new records for jobs advertisements (currently more than 200,000 available jobs nationally). But attracting someone with relevant skills from out of town is not possible when there’s nowhere for the job-taker to live.
It’s all connected to insufficient rental supply and destructive regulations.
Melbourne and Sydney continue to be the paradoxical exceptions to the rental crisis norm. Both cities have maintained rental vacancy rates greater than the 2.5 percent equilibrium for 2 and 4 years, respectively.
But, with overseas migration now recommencing, Propertyology predicts that, by this time next year, the rental markets of Australia’s two biggest cities will be approaching similar crisis levels to what the rest of Australia has been experiencing for the last few years.
SUPPLY, WE NEED MORE SUPPLY
Most of us have lived in a rented home at various stages of our lives.
At the 2016 Census count, 27 percent (or 2,561,302 dwellings) of the total properties in Australia were rented.
I’ve analysed every Census paper dating back over a century and the official data confirms that, for the last 60-years, a third of this country’s total population has lived in rental accommodation [refer below chart].
Rental accommodation is not something that will ever go out of fashion.
Logic suggests the ratio of owner-occupied to rented properties will always hover around the current 2 to 1.
To maintain balance between annual growth in rental demand and available supply, the size of the nation’s permanent rental pool needs to increase by circa 70,000 every year single year.
The fact that Australia has failed miserably at this over the last 5-consecutive years is the cause of today’s rental crisis.
For perspective, the total national population increased by 1.5 million over the last 5-years so one would expect a significant increase in the total volume of dwellings advertised for rent over that period. Alas, it reduced from 86,683 in December 2016 to a piddly 57,558 in December 2021.
‘Crisis’ is not a strong enough word.
The numbers are significantly more horrifying when Sydney and Melbourne are excluded. The 15 million people who live in Australia’s other six capital cities plus 200 regional cities are currently competing for only 16,896 dwellings, down from 61,980 dwellings advertised for rent in December 2016. Dire straits.
Insufficient rental supply creates intense competition among active tenants. Rents then rise. It is not rocket science.
SUSTAINABLE SOLUTIONS
Unfortunately, as certain as today rolls into tomorrow, things will get much, much worse before they improve.
The actions of the very few organisations in a position to support the supply of much needed rental accommodation are making it worse.
To be crystal clear, there are only *two* sources of rental supply.
Australia’s current rental pool is 15 percent government-funded (down from 26 percent in 1991), while the other 85 percent is privately-funded by 2.1 million everyday Aussie property investors.
The competing interests of government funds for new infrastructure, education, health care and welfare support have (understandably) taken precedent over government contributions for year-on-year funding of extra supply of rental dwellings.
Frankly, the allocation of taxpayer funds to housing really should only be for the genuine disadvantaged (social housing).
So that means that, with state and federal governments only adding 3,000 of the required 70,000 extra rental properties required across Australia each year, rental supply is almost entirely dependent upon discretionary funding from private citizens… To be specific, private citizens who are financially disciplined, sufficiently motivated, and having enough confidence to take acceptable risks in pursuit of their eventual financial independence.
Since 2015, those citizens with the capacity to fund more rental supply have been on the receiving end of a federal government department (APRA) enforcing grossly overzealous credit policies along with hitting investors with an interest rate loading. The federal government also significantly diluted tax deductions (depreciation).
Instead of supporting the discretionary action to invest, government decisions have diminished participation rates and the minimum annual quota of 70,000 extra rental dwellings consistently was not met.
Property managers all over Australia continually say that lots of landlords sold out of the market because they had a gut-full of new legislation introduced by state governments, stripping away fundamental controls from asset owners.
Layer upon layer of tighter restrictions with regards to who can rent an asset, how the asset can be used, and what an owner can / can’t do when setting the rental price has caused many former landlords to sell, thereby reducing the rental pool. The chart above proves cause-and-effect of today’s booming rent prices.
State government restrictions on the investor’s income-earning capacity (rent) is discouraging enough, but expenses keep rising. Land tax (state government), council rates (local government), and insurance costs have increased. Trade labour and materials to maintain a rental property aren’t getting any cheaper, and there’s interest rate expense which will inevitably rise.
There’s only so much juice in the orange.
Lockdowns may be finally over, but a seriously over regulated real estate system means that anyone looking to move homes in Australia is now locked-out.
Those who think the solution for supplying no less than 70,000 extra rental dwellings every year is to keep squeezing the orange are only exacerbating an enormous problem. They are not part of the solution.
Rental properties don’t grow on trees.
Make no mistake, rents will rise significantly over these next few years.
Only a hypocrite would think that restricting an investor’s capacity and confidence will encourage them to participate.
It’s not rocket science.
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