Rental properties are gushing cash right now
Everyone is talking about the turn in the property cycle.
(Mild so far, probably going to remain mild as long as the RBA doesn’t get ahead of itself.)
But the real story for me is the insane growth in rental prices. Rents are just hosing cash into the pockets of landlords right now.
I mean, Domain data reckons that rental prices are up 16% over the year! That’s crazy town.
Rental affordability has taken another hit with asking rents of houses in every capital city bar Darwin rising at their fastest annual rate on record and the apartment rents accelerating further as demand among tenants shifts to lower-priced rental units.
The median asking rent of houses across all state and territory capitals jumped 12 per cent over the year to June – a new record – and the equivalent figure for unit rents leaped 12.2 per cent, Domain’s quarterly rent report shows.
Asking house rents in Brisbane posted the biggest year-on-year gain, surging 16.9 per cent, followed by Sydney (12.7 per cent) and Adelaide (11.6 per cent). The Queensland capital also led in unit rent increases, with a 12.5 per cent annual rise, also followed by Sydney (11.7 per cent) and Hobart (11.1 per cent).
And why? Why are rents exploding like this?
Well, you’ve got the usual cyclical factors…
Many factors contributed to the tight rental market, such as high purchase prices that kept would-be buyers in the rental market for longer and kept overall demand higher, rising borrowing costs being passed on to tenants and overseas migration and a return of international students also added to rental demand, Domain head of economics and research Nicola Powell said.
But there’s a new player in town – household formation.
But the greatest single driver of demand was the change in household formation that prompted many people as a result of the pandemic to move out of shared living arrangements to be in smaller groupings or on their own, Dr Powell said.
Federal government housing agency NHFIC earlier this year said that there was an increase of 35,000 single-person households last year alone.
So interesting. That’s a huge boom in single-person households.
And so we just need more houses to house the same number of people.
And this is all before immigration has returned in any meaningful way.
When that happens, we’ll need more houses to house the more number of people.
(You know what I mean.)
And so this is one of the reasons I expect the consolidation in house prices to be reasonably short lived.
Rental properties are cash-cows right now. The returns are exploding.
And so long as they’re growing faster than rates are rising, then demand is going to increase.
And that pushes up prices.
So any downturn in the overall market is likely to be short-lived.