I still don’t know why, but it’s clear what this rental crisis will do to our markets.
So it’s official. We have a rental crisis on our hands.
This has been one of the background news stories since the pandemic began. Almost immediately there was a massive collapse in the availability of rental stock.
It started a trend that hasn’t shown any sign of letting up. According to SQM, the national vacancy rate has fallen to just 1.2%.
You can think about 3% being about balanced, so 1.2% is just stupid.
And then when you look down the list and see that in Perth, Adelaide, Canberra and Hobart its about 0.5%, it’s just off the hook.
It’s just crazy. Where did all those rental houses go?
Only Sydney and Melbourne have vacancy rates above 1%, but they’re falling fast too.
And look at the turnaround in Perth! Back in 2016 the vacancy rate was somewhere around 5%. Now it’s 0.5%. Wild.
Of course, when vacancies are this tight, you naturally get a lot of competitive pressure pushing up rental prices.
Rising prices and a shortage of stock is what makes SQM Research’s managing director, Louis Christopher, say that we’re facing a “significant rental crisis”:
“Given a dramatic tightening in vacancy rates, we are seeing an ongoing acceleration in weekly market rents across the capital cities. This situation now represents a significant rental crisis across the country. The flooding may exacerbate the shortage of rental accommodation in NSW and Queensland in coming weeks. And the new surge in international students and other overseas arrivals will continue to create shortages in our inner-city regions.
“Overall, it is likely vacancy rates will fall again over March as the first week recorded yet another decline in rental accommodation listings. Some slight relief may be at hand as the current seasonal tightening we have seen at this time of year generally comes to an end over April.
“All the same, we can expect capital city rents to rise by over 10% in 2022. As it stands, the current rent rises represent the largest increase since the 1970s and so there are major near terms ramifications for inflation. Housing is the highest weighted group in the CPI, accounting for around 23% of the basket,” said Christopher.
Rental markets are already growing at 8.7% year on year, so it’s not much of a stretch from here to 10% growth.
Which, as he says, is the strongest rental growth since the 1970s.
It’s still a puzzle. Why is there such a shortage of stock.
It’s not like there’s suddenly more people that we expected. In fact, thanks to the closed borders, we’ve ended up with a lot fewer people than expected.
The only explanation can be that we’re spreading out more – putting less people on average into dwellings than we used to.
And why are we doing that?
I don’t have a good answer for that.
But what I do know is that when rents go up, prices go up. When the return of an asset goes up, the price of an asset goes up.
And so stronger rents means stronger prices.
We can lock it in.
JG.