renting
Image – Canva.
  • Record low vacancy rates around the nation
  • Lending restrictions on investors
  • Investors selling off their properties

It was only a little over two years ago that the shuttering of our international borders was seemingly going to see our rental markets flooded with empty rental properties.

Sure, for a short period, inner-city unit stock in Sydney and Melbourne bore the brunt of the pandemic; but everywhere else started to experience the opposite.

Rental vacancy rates had been falling for several years before the pandemic. Actually, their downward trajectory was already well entrenched before 2020.

So, where have all the rental properties gone when our population has flat-lined?

There is no definite answer to this question. But, it seems like a perfect storm of factors that have combined to create one of the worst rental crises our nation has ever experienced.

The facts on rental properties

Currently, the national residential vacancy rate is 1.1 per cent . This is well below the equilibrium point of three per cent – and the lowest rate for decades.

In some capital cities, such as Adelaide, the vacancy rate is just 0.4 per cent; the lowest ever recorded in one of our capital cities.

The situation is just as tricky in Brisbane, Hobart, Perth, and Darwin. Even the inner-city unit markets of Sydney and Melbourne being well and truly recovered from their temporary vacancy spikes.

According to SQM Research, at the start of June, there were about 56,000 vacant rental properties available in Australia; about half the number that was available four years before.

National

Remember that our country has about 2.6 million rental properties and you will start to understand how small this number of vacancies is.

Such a critical undersupply of rental properties has resulted in rents soaring over the past year and a half, with weekly rents increasing by double-digit percentages.

Plus, with interest rates now increasing at the same time as so few rental properties being available, there is no question that rents will keep rising… possibly for the next few years.

How did we get here?

Alas, this situation was almost written in the stars. It started way back in 2017 when someone decided it would be a good idea to make it harder for investors to secure mortgages.

Sydney’s property boom was petering out by that stage, as is the normal way of rising market cycles that always eventually end.

But, still, it soon became much more difficult for investors to borrow to purchase a rental property. This is including in areas that hadn’t seen any solid property price growth for years.

Oh my lord….

So, even if an investor wanted to add to the rental stock, many couldn’t secure the finance to do so.

This resulted in the volume of investor activity falling for years. Indeed, investors hit a record low of just 22.9 per cent of the market in 2020, when their historical average is about 35 per cent.

Politics messing about with the rental market

Before the 2019 Federal Election, negative gearing also became a political football again. Which hardly inspired the investors who could secure finance to actually do so.

Then we had the possibility of investors having to provide free accommodation to their tenants at the start of the pandemic. Thankfully this didn’t come to pass!

But, the mere fact that idea seemed to be a perfectly “reasonable” option for a time no doubt inspired many investors to sell their holdings when property prices started to rise in 2021.

Most of that stock was bought by homeowners, which meant that the supply of rental properties still reduced even further.

So, here we are… Market intervention always ends badly, in my opinion.

Plus, I think that many investors are just sick and tired of being the cash cow for government coffers as well as the punching bag for frustrated homebuyers and have simply had enough.

Hating on “greedy” investors seems to be a national sport. Even though 90 per cent of them own just one or two properties and provide the majority of rental accommodation; it’s little wonder that we are in the current situation.

And it’s a situation that is about to get much worse.




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