Rental vacancies surge

ScreenHunter_856 Jan. 16 10.30

By Leith van Onselen

SQM Research has released its rental vacancies report for the month of December, which registered a big increase in the vacancy rate to 2.6% nationally, from 2.2% in the prior month and 2.3% in December 2012:

ScreenHunter_857 Jan. 16 10.37

Part of the increase in the vacancy rate in December relates to seasonality, with vacancy rates typically rising at this time of year, although vacancies have clearly risen materially over the year, particularly in Perth, Brisbane and Canberra.

According to SQM Research:

Melbourne’s 3.4% vacancy rate for December marks the fifth consecutive increase in vacancies for this capital city and is now sitting above what SQM Research considers to be market equilibrium which is 3.0%.

Of particular significance are now ongoing uptrends in a number of the capital cities’ CBD location. Vacancy rates for example in Brisbane’s CBD are currently sitting at 5.4%, Melbourne’s CBD at 5.8% and Perth’s CBD at 5.9%. In all three CBD locations, vacancy rates have surged from mid-2013 onwards.

The elevated vacancy rates are predominantly due to new supply on the market in these inner city localities and can explain some of the surges in vacancies for these cities.

As also previously reported, SQM Research has recorded some extremely high vacancy rates for a number of resources based townships. In particular:

• Karratha – 8.0%
• Port Hedland – 6.3%
• Gladstone – 11.1%
• Mackay – 6.8%
• Townsville – 8.0%

SQM Research’s Asking Rents Index revealed that asking prices for rental properties remained flat during 2013, with the capital city average recording a mere 0.8% increase in asking rents for houses and a 1% increase in asking rents for units.

The clear outperformer of the capital cities over the year was Darwin with a 5.9% increase in asking rents for houses and a 7.7% increase in asking rents for units. Canberra however, recorded the steepest declines with an -8.4% decrease in asking rents for houses and a -5.3% decrease in asking rents for units.

25 Responses to “ “Rental vacancies surge”

  1. Gunnamatta says:

    Gidday all, greetings from Coolangatta, where I have brought the family to evade the week of +40s at home.

    On this one I can say that I moved from one place in Geelong – magnificent position right near beach and botanical gardens – to another in Geelong recently. I ended up renting a far larger place than I moved out of and saved circa 15% of my renting costs, for a much larger abode closer to the school (my reason for moving). I have noted that in Geelong at least there are large numbers of places which are seemingly available for rent for months on end – many I looked at haven’t been rented out yet, as has the place we departed. Another thing I have noticed is that what seems to be happening with these places is that they have the sign tacked up out front but only appear in realestate.com or domain intermittently (I am not sure why that would be).

    • Janet says:

      Angatta, being the Aboriginal word for ‘place of refuge’ I guess :)

      • Tea Merchant says:

        Ditto Gunna’s for Canberra ACT. In fact 3 bedroom houses vacant for months on end. I have seen a respectable and neat one vacant now for three months, one of many. At the top end of the scale the 5 bedroom and above with pool, landscaped gardens etc sit vacant for many months if not 6 months at a time. We moves and saved 15% also on a better quality home, many times superior to the last rathole we rented.

        Everyone know’s about the job growth crisis here in the ACT, in recession. As far as advertising is concerned the private rentals have to foot the bill but maybe the real estate agents are trying to save money on advertising costs, however they are not the party feeling the cost squeeze, they have more than ever home owner investors knocking at their door paying them to rent the place!

        Funny thing is why would people migrate here if there are no jobs, no casual positions or part -time to make it worthwhile to move in from the regions? I think the place is being filled with refugees and little else.

        For those who do not know, a new development suburb called Lawson was almost entirely sold to Chinese and Indian investors off the plan – still not enough dough to fund the ACT Government growth plans:)

      • Blockbuster says:

        Tea merchant…

        I was interested in your comments about the Lawson development. I was surprised at how over-subscribed it was, given its distance and the horrible state of the Canberra market. Not that I don’t believe you, but do you have a source for your comment about Chinese and Indian investors?

        Regardless of what the Property Council ACT wants you to believe, the rental market in Canberra is terrible for landlords at the moment. Likely that the rental market is a leading indicator for sales – because sellers are reluctant to realise a loss but landlords have little choice other than to find a tenant by lowering the price.

        Anecdotally, pretty much every renter is asking for (and getting) a break on the rent when their leases come up for renewal. There are so many empty flats available and so many more still to be completed and come on to the market. The commercial property market looks even worse – which developers can afford to carry all those costs? It wouldn’t surprise me if some of them start to go under.

      • The Patrician says:

        Re Lawson land sales

        http://www.canberratimes.com.au/act-news/lawson-blocks-snapped-up-at-top-price-20131203-2yo7n.html

        $500k for a 500sqm vacant block in a sheep paddock in the outer suburbs of Canberra! That is nuts.

      • Blockbuster says:

        Thanks Patrician for the reply.

        It will be sad to see so many aspirational families badly hurt when the crunch eventually comes.

      • Tea Merchant says:

        Blockbuster, heads up the street cred tells all. Was on my along Ginninderra Drive one morning before the Lawson excavation started and saw to my disbelief a Japanese suburban parked on the left outside the fences. Standing on the step ups was the typical plain dressed in blue cotton long sleeved top and dito pants, worn look 50-60 year old man of Chinese decent snapping away at the bare western hill………..happy snaps to alert the Agents in China of the landscape and hill aspect of the release. Several weeks later after the land auction and subsequent beginning of excavation work a senior member of the ACT building fraternity confirmed my suspicions – approximately 90% to Chinese buyers. Please some one confirm or deny to releave us of this nagging itch of Chinese whispers.

        Now I understand the need for the ACT Gov to raise revenue as they desperately need it, and the fact the development will inevitably supply the University of Canberra much needed dwellings sublet for student accommodation in the longer term once speculators have flipped and sold and resold about seven times, but the sheer lunacy of it all is THAT HILL WITH A WESTERN ASPECT IS ONE OF THE HOTTEST GODDAM HILL’S IN CANBERRA – temperature that is! It faces directly west and a seedling of a tree has not grown on that hill for at least 80-100 years! What an absolute hellhole of a place to live, especially considering it is more than likely it will be eave to eave construction as per Crace. Driving past one will almost feel the heat reflection as one can now with the scorched earth excavation.

        The irrationality of it all….

    • Chubba says:

      I was looking at brand new units to rent in south east suburbs of Melbourne. Most of the new builds in the area had no A/C. I spent a few months looking then gave up. I mentioned to the rental agents how I could not believe new places were being built without A/C to which there was no reply. I had a quick look today and some of those place are still vacant so that is 4 months of no rent for the landlords. That’s the cost of installed split system unit right there.Today, one unit is advertised dangling a carrot ” AC to be installed”.

      • innocent bystander says:

        ah, but, they are architect designed so don’t need a/c

      • C.M.Burns says:

        it probably takes quite a long time for the local RE to gather the gumption to communicate bad news back to the overseas owner, and even longer to them convince them to invest money in a property.

    • innocent bystander says:

      “Another thing I have noticed is that what seems to be happening with these places is that they have the sign tacked up out front but only appear in realestate.com or domain intermittently (I am not sure why that would be).”

      interesting, only 2 things spring to mind.
      a) I know a few r/e agents not using those sites due to costs,
      b) it might be a way of getting the “new” listing onto the email alerts going out

  2. sydboy007 says:

    But but the fundamentals. There’s never been a better time to buy. Everyone knows you’ll double ya money in 7 years, maybe faster with all those cashed up foreign buyers.

    Just another bail in the property specufestor coffin

  3. A fall in rents is NOT part of my bearish land market calculations. Rents have held quite firmly through previous major downturns, even though vacancies become widespread.

    If we do have a rental correction (too many wannabe landlords competing for tenants) the current execrable returns available on residential IP will shrink further. The property industry is incredibly fragile at the moment. A rent retreat would tip it over.

    Don’t Buy Now!

    • thomickers says:

      +1 David,

      most property investors do not ask themselves “how much cashflow will I receive over x amount of years”. instead They ask themselves “how much debt can I afford to pay”?

      If rents do fall, they will ask themselves “where the hell did my rent go”????

      • AF says:

        Or if the tenants move out they are in deep poo!

      • Ino says:

        @ AF: This is where you and I are wrong – buddy! Negative Gearing will save them! Negative Gearing is like Jesus: turns bread and fish in a one hell of a tuna-sandwich – enough to go around for everyone!

        Sarcasm aside – we had the typical a*se-clown REA pushing the “oh, surprise! – the owner wants $10/week” more at renewal time. We said: “here’s a brand spankin’ new place with AC, dish-washer, 2 fully enclosed garages and 4 rooms for what you’re dreaming; it will take us 4 days to move and not a lot of money. Here’s our counter-offer – because of the nice Indiana Jones maps of a lost world on the ceiling (roof leaking at some point last year – took 6 months to get someone to look at it) and no AC, and no dish-washer and … and.. and… “

        Funny how they backed down in less than one hour!

        My suspicion is that the owner never wanted or even knew they wanted to up the rent – it was the REA all along.

        Sooooo… screw them! With a rusty star-picket! Sideways!

    • Coming says:

      This seems like wishful thinking, doesn’t it?

      Landlords barely care about rent; lower rent just means more negative gearing.

      If yields were to drop, they certainly wont sell their houses into a falling market instead.

      The only thing that will crash the property market is a large rise in unemployment or a large rise in interest rates.

      • gregonomic says:

        Or a change in government policy to negative gearing, after it swallowed the budget…

      • C.M.Burns says:

        this is true up to a point. The financial “benefit” of NG is annual, when you receive your tax return. The financial cost of NG is whatever your loan repayment period is – fortnightly or monthly for most people.

        As the gap between income (rent) and cost (mortgage) grows, the impact on the investors cash flow for all other living expenses is felt more strongly. Remember that the vast majority of NG investors are ‘middle class’ – a few months of tightened cash flow could be tolerated, but once that goes north of 6-12 months then the appeal of an NG property will seriously start to wane.

  4. The Patrician says:

    15% increase in advertised rental vacancies nationally in the last 12mnths and prices rise by 10%.
    The ZIRP/NG-driven disconnect is complete.

  5. Greconomics says:

    “Melbourne’s 3.4% vacancy rate for December marks the fifth consecutive increase in vacancies for this capital city and is now sitting above what SQM Research considers to be market equilibrium which is 3.0%.”

    Yes, but the number of vacancies declined from 15,484 (Dec ’12) to 15,037 (Dec ’13)…. not exactly a terrible situation for landlords. The results in Perth, Brisbane and Sydney are much worse.

    • fushy says:

      Question is how many simply are just not being listed anymore vs how many are being taken up by new tenants.

  6. Chubba says:

    @ INO “My suspicion is that the owner never wanted or even knew they wanted to up the rent – it was the REA all along”

    I have previously suspected the same. In my case a few years back, the request/demand seemed to appear around this time each year and I suspected it had something to do with increasing rental (roll)? at the agents branch, you know, more money coming in increasing profits annually.

  7. As unemployment really starts to kick in … watch vacancy rates increase dramatically, as people make other arrangements to accommodate themselves within their incomes.

    There is far more “elasticity” on this front than most commentators / economists realise. And it happens very fast too… particularly in very distorted and severely unaffordable housing markets, as is the case with Australia.

    This years Demographia Survey released Monday will make very interesting reading.

    Hugh Pavletich

    • aj. says:

      I completely agree with this, elasticity of housing supply is massively understated in the west.

      However, don’t underestimate the ability of governments to manipulate the monetary system, to protect asset holders.

      Asset values are trumps in this game.