If there’s no immigration, why are rents booming?
I’ve been scratching my head over this one for a little bit, and I still can’t figure it out.
Let me lay out the pieces and see if you can figure out how they fit together.
So first up, we know that immigration has gone to zero, and population growth has retuned to its natural rate, which in Australia, isn’t pretty much sod-all.
It’s not bad in the global scheme of things. But it’s not going to be driving a housing boom on its own that’s for sure.
But while population growth has tanked, the rental market is heating up.
In fact, the official vacancy rate fell to 1.9% in April – the lowest level since March 2013!
So that tells us that there just aren’t enough homes to house everybody.
Sydney and Melbourne are the exception, where a glut of high-rise apartments is bumping those vacancy rates up.
But around the rest of the country, there’s almost not a rental to be found. (My rule of thumb is that something around 3% is a balanced market. Anything sub-1 is tight. Really tight.)
So how is that happening. How is there suddenly a shortage of houses if the population isn’t growing?
And we know its not a problem with the data. We know that because the data on rental prices shows that rents are growing at an incredible clip.
Rental prices were 4.9% higher in April, and going vertical.
So rental prices are booming, which is exactly what you expect in a tight rental market.
And city by city, it’s a consistent story. Rental growth in Sydney and Melbourne is being held back by the apartment segment, but look at the other capitals, and look at those regional areas!
So what’s going on here? How is housing demand surging if the population is steady?
That’s a puzzle.
It does to suggest that household size is falling.
The same amount of people, spreading themselves out over the same number of houses equals increased rental demand.
But why are they doing that? Why are they doing that now?
Maybe because they’ve got more money in their pockets so they think it’s a good time to strike out on their own?
Maybe the kids just can’t hack Covid lockdown with the parents so they’re going out on their own?
There’s some partial reasons there, but nothing overly convincing.
So I don’t know. I think there’s a story here but I’m not sure exactly what it is?
But in the meantime, booming rents means booming prices.
Oh, and did I mention we’ve got record low interest rates as well.