Rental prices continue to surge… and they’re not stopping.
Unless you’ve been living under a rock or on a tropical island, you’ve probably caught wind of the ongoing rental crisis in Australia.
Rental prices are soaring.
I’m seeing it in my portfolio. As soon as anything become vacant, there’s hot demand from prospective tenants, and even I’m surprised at what market rates are.
This has been one of the features of Covid. Rental prices surged as we changed the way we lived – moved to regional areas, moved into more spacious homes with home-offices etc.
As we tried to digest all that, rental prices boomed.
But they’re still booming.
And they’re not going to stop booming anytime soon.
That’s the forecast from Westpac:
Soaring residential rents are unlikely to peak until early next year as the chronic shortage of rental homes amid surging migration is expected to persist over the next 12 months, according to Westpac.
Westpac Business and St George senior economist Pat Bustamante said the current rental crunch was likely to be longer and more severe than the previous cycles as demand vastly outpaces supply.
“Given the current supply and demand dynamics, and the lag in supply, the peak would likely take longer than people expect,” Mr Bustamante told The Australian Financial Review.
“The return of migrants and international students is providing an important injection of labour supply, but it’s also putting a further strain on the rental market.
“Unlike the previous cycles, we’re not seeing the supply response because interest rates are increasing and there’s also a lag between approvals and construction, which means we’re unlikely to see a reasonable amount of new supply until the middle of 2024.”
Yep. The sad news for people freaking out about the rental crisis is that there’s still a ways to go yet.
And that’s going to give us some very strong growth in rental returns. Like, try north of 11% a year!
Westpac predicts advertised rents to rise by 11.5 per cent this year, the sharpest annual increase on record. This would take the average asking rent nationwide to $633 a week, or an additional $65.
“This could be enough to entice investors and developers back into the market, which would ease the supply crunch,” Mr Bustamante said.
“We expect this to happen towards the end of 2023 in some pockets, only after further rent hikes.”
Yeah… but with an ongoing crunch in building materials, major developers going to the wall every week, I don’t know that I’d be banking on any sudden lift in supply.
For my money, there’s every chance it gets worse.
This is good news for investors, as rising rental returns will offset some of the pain of rising rates.
And in the long run, the more an asset returns, the more it’s worth.
Which means higher house prices going forward.
JG.