Hey
Here is what you need to know what’s happening
First, wishing everyone a Happy Easter weekend.
Whatever, wherever, however, you are celebrating it, I hope you get a chance to make the most of it.
Today, I thought we would delve into the rental market.
Of course, this should be of interest to most of you, whether from a landlord/potential landlord, or tenants’ perspective.
‘1. Vacancy rates are still extremely tight
Across the country the vacancy rate is only 1.1%, with only 34,438 properties available for rent nationwide.
If you look at the second column from the right in the table below, you’ll see why there are queues of potential tenants applying for a decent rental property.
A “balanced rental market” is considered to have a 2.5%-3% vacancy rate.
This means we are approximately 44,000 homes under-supplied in the rental market alone just to get to a 2.5% vacancy rate.
Melbourne and Sydney appear slightly less acute but remember many of these will be 1-2 bed central city apartments, unsuitable for many tenants.
‘2. Rent increases are slowing
The annual rate of rent increase has slowed to 3.8%
This is a sharp deceleration from the 8%+ we have seen in recent years.
Here it is by capital cities and State regional areas.
Perth and WA generally are still the standouts.
Again, Sydney and Melbourne are dragging this down and represent a higher weighting.
It is interesting to see the regional areas outperform the cities – this is also consistent with each state.
It may be surprising for many to see the rental increases slowing.
Many commentators lazily say it is “affordability” – tenants will only pay so much before adjusting their living arrangements e.g. move back home or go into shared accommodation.
If affordability is the main factor, we’d expect to see vacancy rates rising faster
I think it’s more than that—generally, investors look at their holding costs of their property when looking at rent increases.
The largest cost of holding a property? Interest on your mortgage.
As interest rates have now stabilised and predicted to fall noticeably from here, I wouldn’t be surprised if the increase in rent falls below 3%, something more like the inflation rate.
‘3 Investors are re-entering the market
With falling interest rates, rising international risks, and a still increasingly unbalanced supply/demand dynamic—expected to continue for years—it’s no surprise to see investors move back into the market.
This chart shows that investor lending, though volatile, had its highest quarter – a clear sign of them coming into the market more enthusiastically.
‘4 A fascinating but disturbing report out this week
This week the Australian Housing and Urban Research Institute (yep, “AHURI”) produced a report called Modelling landlord behaviour and its impact on rental affordability: Insights across two decades (“MLBAIIORAIATD”, ok I made that up).
It’s a fascinating look at who buys, sells, and motivations of investor behaviour. You can get it from their website.
Read it to your chocolate-filled kids—it’s sure to outlast any sugar highs they’re riding.
If not, I may well come back to it at some stage.
It raised an issue that worries me and should make all if us think before buying that investment property and why you are doing it.
What’s most concerning is how quickly investors are selling their properties – 22% sell within just two years.
This is a terrible number and goes against how you should be investing in property, especially an investment property.
I would go as far to say if you don’t intend to hold it for at least five years you don’t have the most important asset working for you: time.
Properties are too expensive to buy and sell. Let time do its’ job.
More so, it is time that magnifies the steady, consistent, compounding capital growth of a property.
I know things can go wrong and we have been through one of the most brutal series of interest rate rises over the last few years.
The lesson: we need to plan and build in sufficient buffers to get us through—and let time do its job.
I’ve taken this chart from the report and added some of my own notes to it.
Those holding 5year+ and for the 25% holding for over 20years will be sitting extremely happy now.
Have a great week!
