Canberra unit glut hits landlords

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By Leith van Onselen

Back in February, the Canberra Times reported heavy discounting from landlords amid an influx of new developments that had reportedly pushed rental supply to 15-year highs:

AN INFLUX of developments has pushed Canberra’s rental market to new levels of supply as anecdotal reports of discounted rents begin to emerge.

The vacancy rate is approximately 3 to 5 per cent, according to Badenoch Real Estate principal Symon Badenoch, who said there were more properties on the rental market now than he had seen in 15 years.

He said traditionally demand had been higher than supply in Canberra, but the market had softened and owners who could not sell had turned to renting…

”You are getting 150 units being completed behind another one – and another one,” he said. ”Suddenly you are getting 1200 properties added to the rental market in one hit if they are not picked up by buyers who want to move in”…

The last review from property adviser Herron Todd White also alluded to rental discounts as more developments throughout Gungahlin, Belconnen and Molonglo add to the supply.

”We are expecting to see a surge in supply of rental properties which could possibly lead to very competitive rental pricing within the market,” it stated.

The reported glut of rental units was supported by dwelling completions data release yesterday by the Australian Bureau of Statistics (ABS), which revealed an ongoing boom in apartment and unit construction (see next chart).

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Rental data released last week by Australian Property Monitors (APM) also showed that Canberra unit rents remained flat over the March quarter, but were down -2.3% over the year (see next chart).

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The contraction in Canberra unit rents is also confirmed by SQM Research’s asking rents series, which showed unit asking rents falling by nearly -5% over the past year (see below chart and table).

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SQM Research has also report an uplift in Canberra rental vacancies recently, which likely reflects the increased level of apartment construction (see next chart).

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Overall, it looks like a bad time to be a landlord in Canberra, although dwelling approvals data does suggest that the unit & apartment construction boom will soon come to an end (see next chart).

ScreenHunter_24 Apr. 17 20.50

To date, Canberra dwelling values have not followed the rental market, and have held-up well. Nonetheless, there is the risk that the election of an Abbott-led federal government later this year could result in austerity measures across Canberra, which would reduce public sector employment and recruitment, and reduce demand for housing in the capital. As a point of reference, after the Howard Government was elected in March 1996, and began cutting spending and jobs across public sector agencies, Canberra dwelling values fell by -8% and did not regain their value until March 1999, according to RP Data-Rismark.

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Comments

  1. Not just Australia’s capital “General manager of real estate company First National said the oversupply of rental property was becoming an “increasing concern”in Wellington with some “very good” executive properties sitting vacant for up to six months….We have heard rumours of landlords offering incentives like diminished rent if you sign for a long-term contract, or we will give you a certain heating system or we will give you a 50 inch flat screen television. As late as two years ago things were fine ..it’s changed there mainly since the middle of 2010.”
    http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=10719039

  2. GunnamattaMEMBER

    Geez the prospect of an incoming conservative government with public service hacking agenda – possibly looking for a heavy concentration of policy type APS staff in an electorate that isnt going to vote conservative anyway – may have a subduing effect on the market too.

    • You’d think so but auction clearance rates are still about 50% and people paying big money for houses. Other thing to remember is that only 1/3 of the public service lives in Canberra but still alot of jobs to loose. I don’t think the reality has quite set in yet. Post election will be somewhat different. We might finally be able to buy a house if the bank will lend us the dollars!

      • Wing Nut, I don’t think Abbott has the cojones to carry through with a genuine gutting of the Canberra public service. Howard did it, but Abbott is no Howard. I doubt a natural attrition hiring freeze over a prolonged period will have much of an impact on Canberra house prices. Big, quick cuts are required to do that.

      • Think there will be a number of fronts that are, for a large part, in play at the moment. As The Patrician pointed out, there is currently recruitments freezes, contractor cuts, increase in efficiency dividends and general budget cuts. The Abbott govt will tighten these screws with abit of trimming around the edges. Remember the APS is a soft target that is unable to speak up. It’s a dream for Abbott; the populist politician bashing a popular target.

      • Abbott might put a hiring freeze on but I doubt he has the cojones to sack people.

        He is too afraid of the polls.

      • Tony has already stopped caring about the polls. Polls won’t effect his decision-making again until late 2015, at the earliest.

      • The polls are Abbott’s friend at the moment, but partially because he hasn’t released much genuine policy. His NBN policy went down like a lead balloon. His best tactic is to be as policy-lite as he can be. That way, the ALP bumbles itself out of office and Abbott finds himself in the Lodge almost by default.

      • Thanks MB
        I forgot how good that was.
        Bradbury had actually given up when the field fell over.

  3. Abbott doesn’t care about Canberra. The two electorates in the ACT are about as rock solid ALP as you could get. I think their margin is circa 10%. They wouldn’t be voting Coalition anyway, so Abbott loses nothing by gutting the PS if it mainly affects Canberra. Canberra could do with a bit of a drop in house prices anyway. The price you pay to live in a city of less than 400k is nothing short of eye watering.

    • Yeah, but Canberra has a shortage of land (not).

      I spent around 15 years there and when I left in the late 90’s areas like Ngunawal/Sutton etc were all farmland. Now it’s dense with McMansions.

      Canberra’s industry (ex PS) hasn’t grown that much since then, so I don’t know where all these people (& ability to service new mortgages) is coming from.

      • I think it’s just strong and steady growth of the PS over time. More public servants with already generous salaries that have consistent above inflation pay increases. Households consisting of two middle-ranking public servants have tremendous purchasing power but they all compete against each other for an artificially restricted supply of houses. Households of that type on those salaries would be in a strong position in any other city except perhaps Sydney. Yet in Canberra, they’re just average.

        Canberra has been very much a self-perpetuating bubble ever since the Howard gov’t started to grow the public service after his initial slash and burn in 1996.

  4. I’ve just been asked to leave my rental property in Canberra since the landlord has come back to Australia. When I found the place 4 years ago there were literally dozens of people at open houses, and it was fairly cut-throat to get a place. Rent prices were increasing at around 5-10% per annum at the time. But property prices weren’t really moving, they have stayed much the same over the last 4 years.

    Now I’ve found places that have been vacant for a month or more, dropped rental asking prices 10% and still haven’t gotten applications. I got accepted a place a couple days ago. The end result was that I now pay less than I used to, to live in a much much larger house in a better location.

    With the upcoming liberal government and the oversupply of rental property set to hit house prices, its a great time to *rent* in Canberra 🙂 By my calculations I’ve saved about $75,000 over the last four years by renting, and it is still the best option today.

    I must admit though, it does annoy me to have to move, but not $75,000 worth!

    • I’ve saved a similar amount by not driving BMW’s the last few years. Trouble is I can’t actually find the $75,000 lying around anywhere.

  5. Canberra’s RE market seems to have been a bubble since prices started shooting up in the early noughties. A single person on the average Aussie wage (not Canberra wage) has no hope. The local jobs market has become very slender recently, with many jobs now contracts rather than ongoing. The APS has undergone cost cutting every 6 month cycle (“efficiency dividends”), but people fear what’s coming with Abbott and Co. People like me are hoping there is a crash in housing prices, as then we’ll be in wiht a chance of having a home!

    • I reckon nothing less than a Howard-style slashing of the public service will be required to bring about a decent correction in Canberra house prices. The problem is that an Abbott slashing is likely to be quite different to what Howard did. Howard instituted large-ish cuts in a short timeframe. THe Coalition, spooked by negative publicity, has been at pains to say that any PS reduction will be through natural attrition. That could take years. More likely is that the PS numbers just grow anyway.

      Canberra is such a self-sustaining bubble that it needs a real reduction in public service numbers over a short timeframe for prices to be affected. Anything else and it will just bubble along at a slightly slower rate of increase. Don’t forget that it’s just like a mining town, except the Commonwealth gov’t is the big employer. As such, everything in Canberra depends on the size of the public service.

      • Recent transitions indicate the preferred model is approx 10% across-the-board PS FTE cuts in the first 12 mnths combined with 24 months hiring and wages freeze.

      • If that’s the case, it ought to show up in house prices in Canberra. If Abbott keeps his promise to abolish the Climate Change Department entirely and consolidate a few other assorted agencies, it might just happen. Let’s see if he actually does it. I’ll believe it when I see it.

      • I reckon nothing less than a Howard-style slashing of the public service will be required to bring about a decent correction in Canberra house prices.

        Perhaps a fast train to Gunning would solve the problem. That way the government could make better use of the existing Gunning infrastructure and still save the Canberra surrounds from terrible destructive sprawl.

  6. Thanks for the post Leith. Spot on. I’ve actually got a short complementary rental article that I hope to post tonight or tomorrow on the Canberra House Prices website.

    As others mention above the usually very strong Canberra rental market has weakened recently as supply outstrips demand. I’ve had a few emails from landlords dumbfounded that it’s taken their agents months to find tenants and that’s after they’ve dropped the price. They’re actually blaming the agents without realising that the ballgame has changed. Talk to agents and they say the rental market is very quiet. Some renters breaking leases are getting burned too when they find it’s not that easy to find new renters to take on the lease when other comparable properties have dropped in price.

    The sales market appears in much better shape. This seems at odds with the likely change of government and the likelihood that it won’t be great for Canberra. Lower interest rates must be playing their part. I still think everyone in Canberra (especially those in the PS) is a bit on edge but still fairly confident that they’ll get through any job cuts.

    • I keep a lazy on your blog and think it’s a great read. I agree too that any PS job cuts that Canberra does get are going to be significantly lower than the scaremongering. I don’t think Abbott has the guts to cut too hard. I suspect that the Canberra bubble will remain inflated for some time yet.