Residential rents are falling or flat-lining in a surprising number of locations around Australia, as tenants respond to increases in supply and cost-of-living pressures.
The “housing crisis” isn’t over. The shortage of social and affordable accommodation remains acute.
The increase in vacancy, and the weakening in asking rents, is most noticeable in regions such as the NSW Central Coast, and, at the higher-priced end of the market in cities as diverse as Sydney, Hobart, Adelaide and the Gold Coast.
Nevertheless, the slowdown in the post-pandemic rental surge – perhaps foreshadowing a return to the more benign rental growth of the 2010s – requires a more nuanced approach to housing.
Landlords need to better understand their market; potential investors and build-to-rent promoters should be cautious about bullish projections of rental growth; and, hopefully, some of the vitriol directed at the country’s private rental providers will abate.
The pandemic surge has been extraordinary. The latest CoreLogic Rental Insights, released earlier this month, headlined 1700 suburbs where asking rents increased by more than 10 per cent in the year to May.
But the report also noted the pace of asking rental growth was slowing, dipping to an annualised, though still strong, 9.9 per cent in May.
In particular, rental growth in the regions slowed “dramatically”, down to 0.3 per cent in May, as the pandemic exodus to areas such as the NSW Central Coast or Victoria’s Mornington Peninsula abated.
In the cities, the growth in detached house rents moderated, to 0.9 per cent in May, while apartments, which are more affordable and are bouncing back from their pandemic lows helped by the return of international students, continued to grow strongly at 1.4 per cent for the month.
The corollary to the 40 per cent of the nation’s suburbs where rental growth exceeded 10 per cent, is that 60 per cent of Australian suburbs experienced rental growth of less than 10 per cent in the year to May.
The Reserve Bank and the Australian Bureau of Statistics note that for the 70-75 per cent of rentals where the tenant did not change in the past year, the real rental growth is even less, even though many owners have demanded sharp increases.
In NSW, CoreLogic reported asking rental growth under 2 per cent for the year in the regions on the outskirts of Sydney such as Gosford, Wyong, the Blue Mountains and Wollondilly and within the metropolitan area in Ku-ring-gai and Rouse Hill/McGraths Hill.
In Victoria, the rental growth on Mornington Peninsula was also under 2 per cent for the year.
In Brisbane, asking rents fell in Ascot, and in the city’s bayside suburbs such as Wynnum and Redland Bay the annual growth was under 5 per cent.
Asking rents across Canberra – for long the country’s most expensive city – declined as supply increased and the vacancy rate rose from a tight 0.7 per cent in March 2022 to 2.2 per cent in May 2023.
The chief executive of the Real Estate Institute of Queensland, Antonia Mercorella, has noticed the change in the market, with more stock becoming available as tenants have reached the limits of affordability.
“People have adapted and made alternative arrangements; they are living with others or they have moved back with their parents,” she says.
The shift is exactly what Reserve Bank Governor Phillip Lowe predicted. The market, in this case renters, is adapting to higher prices.
During the pandemic, household size reduced. People wanted more space to themselves, and, as rents dropped in the inner city, they were able to buy more space per person.
The Reserve Bank estimated the shift contributed to the creation of around 120,000 new households, “with some of this demand materialising in the rental market”.
(The Reserve Bank is keeping a close eye on the rental market with a new data set including weekly rent and property characteristics based on 600,000 rental properties.)
CoreLogic’s national research director, Tim Lawless, says the reduction in household size is now being reversed.
“Tenants are looking to minimise their rental,” he says.
In May, share accommodation site Flatmates.com.au reported a record 70,000 new users, as people aimed to fill empty spaces.
In the long term, rental growth is ultimately determined by the interplay of household growth and housing supply. But the equation is not linear.
In the depths of the pandemic, some apartment owners declined to accept big rental reductions and kept properties vacant. Now they will return to the market.
Similarly, some owners, now under mortgage pressure, may be keener than in the past to reduce rents and retain cash flow.
The rise in rents and, until recently, the fall in prices, had improved the yields on residential property, but for many investors not enough to cover those new mortgage costs.
Many leading property managers are seeing the change in the market.
John McGregor, a board member of the Real Estate Institute of Tasmania, says vacancy rates have increased in Hobart but largely at the higher end of the market, at prices above $500 a week.
“The cost of living is having a big effect,” he says. “More properties are becoming available, but not in the affordable band. Those tenants that are struggling, still are.”
The REIQ’s zone chair on the Gold Coast, Andrew Henderson of John Henderson Real Estate, says that in comparison with late last year, the vacancy rate and the time on market has increased.
“Demand is still strong for properties under $800 a week but for those over $1000 a week, there is not the heat we saw during the pandemic,” he says.
“Where the vacancy was under 1 per cent, it’s now well above 1 per cent.”
Madeleine Cahill, the head of property management at Bricks and Mortar Real Estate, with a 500-property portfolio around Melbourne, says the long queues “of 50, 60 and 70” hopeful renters have shortened, but rents are still rising.
Emma Slape, the chief executive of Turner Real Estate, which manages over 4000 rentals across Adelaide, says demand for units has increased in recent weeks but demand for family homes at rents over $700 a week – high for Adelaide – has become “very price-sensitive”.
Earlier this month, Katrina Borg, a 17-year veteran of residential letting in Sydney’s eastern suburbs, wrote to her landlord clients at leading agency PPD Real Estate and challenged the talk about surging rents.
“Feedback from tenants is that they’re looking to cut costs, so don’t believe the hype about landlords in a position to charge what they like and get a great tenant,” she wrote.
“This is not the time to be putting rents up,” she wrote.
Article source: www.afr.com