Lift in vacancies signals end of “rental crisis”

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By Leith van Onselen

SQM Research today released rental vacancy data for the month of April, which revealed an increase in the rental vacancy rate to 2.0% nationally, from 1.9% in both March and April 2012 (see next table).

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From the Media Release:

Nationally, the vacancies rose by 0.1%, bringing the national vacancy rate to 2.0% in April. This is the first time that national vacancies have reached the 2% mark excluding seasonal months (December) since September 2009, suggesting that the rental crisis is truly beginning to ease.

SQM Research believes that this is a result of a recovery in the Australian housing market, with vacancies beginning to ease in several localities compared to this time last year, particularly in Canberra, Perth and Darwin based on an increased number of renters becoming buyers. We expect this to continue when a rise in first home buyers occurs, as they exit the rental market in favour of purchasing their first home.

Louis Christopher, Managing Director of SQM Research says “While the rental market is unlikely to blow out to an oversupply situation in this cycle, we do believe an easing of what has been an extended period of tight conditions for tenants, will now come into existence. It means rent rises which have been running at above inflation for the past five years now, will now slowdown to be more in line with CPI and indeed this is already occurring according to our newly released weekly rents index”.

According to SQM’s Weekly Rents Index, national capital city rents for houses fell by 0.6% in the past 90 days to $521 a week and units rose by 0.5% over the same period to $413 a week. Rental growth for houses has slowed down to a 1.0% over the 12 months while units have increased by 2.5%. More information on SQM’s rents series can be found here.

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Unconventional Economist

Leith van Onselen is Chief Economist at the MB Fund and MB Super. Leith has previously worked at the Australian Treasury, Victorian Treasury and Goldman Sachs.

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    • thomickersMEMBER

      i’m guessing that the housing stimulus funds kicked in.

      back in 09/09 lots of houses listed for sale were also listed for lease as well.

    • BubbleyMEMBER

      Actually, going from 0.6 to 1.1 is a big improvement on last year.

      It’s still appalling, but appalling is better than absolutely dire.

      Housing however is still stupendous for a city of 130,000 people surrounded by nice flat unused land.

      • Not really. Much of that nice flat land is either contaminated or is very flood prone in the event of a Cyclone. Add to that the ownership of the land planned new township, very ugly NT Govt stuff.

  1. Huge increase in Perth. 26% increase in vacancies in one month!

    It would be very interesting to see what % is being driven by renters becoming FHBs and how much is driven by a slowdown in migration (if in fact that is actually occuring).

    Either way, good news for those determined to stay out of the market and wait out the capex cliff.

    • 26%

      No, it isn’t that, my wife and my sister in law both work(ed) in mining related occupations.

      It is drying up big time. This time last year it took my wife 3 days to find work, now she’s been off for 7 weeks.

      My sister in law is a kiwi, and whilst she personally isn’t going back, many similar to her are now returning, and likewise the transient project types are flying out as jobs are completed with no more inbound to replace them.

      Melbourne alone can spread contagion, and tsunami of bankruptcies in Perth will probably increase the prospects of this.

      This won’t end well, however bad it will be though will be thoroughly deserved by the Australian populace.

      • “”This won’t end well, however bad it will be though will be thoroughly deserved by the Australian populace.””
        Great comment…!!! Let the lynching of the spruikers begin!!!

    • I have noticed more rentals in Perth so it appears that things are changing and fast.

      In the Engineering sector things are getting quieter by the week, the iron ore price is falling and the capex cliff is coming soon so things appear that they will only get worse, not better.

      I would hate to be holding a highly leveraged property right now.

  2. reusachtigeMEMBER

    All those happy new investors rushing to get in on “the new housing boom” need renters to be part of their grand plan (except for the Chinese who often don’t want us local riffraff to mess their places up so opt to leave them empty).

  3. I’m not sure why the focus of this discussion is about FHBuyers, after all its investors that have been piling in lately. I’d say it”s more about them trying to rent out their ‘investments’, a flood of investment properties should bring down rents. Yay.

    Also, as a renter these numbers are rubbish numbers, I’ve rented for 20 years and the only time I had trouble finding a place was in early 2009 when we were in the midst of FHB grant madness. Everything then was for sale not rent, but generally I find there’s always lots of property around, but it goes quickly if it’s priced right and okay so it never makes it to the stats.

    • Perth market is tracking a little different to the rest of the country. FHBs there have not been on strike to the same degree as elsewhere.

  4. McPaddyMEMBER

    I’d expect to see more and more rental stock as people who’d like to sell (and have been relying on a massive capital gain to justify their speculative investment) hold off for the return to normal in capital appreciation (as they understand it). After all everybody in the paper is assuring them that the recovery is well underway…

  5. Residential rental costs have been out of control since 2006/07/08 when Landlords blamed 3x interest rates rises and agents blamed supply for increasing rents as much as 20% (in Sydney) in 2007 alone to the elevated level they’re at now.

    A drop of 0.6% in the last 3 months is a start, but it will be back-pedalling for quite a while before it returns to it’s long term median.

    • Exactly. Rents must be far far lower in order to indicate that the shortage of housing has been solved.

      • Indeed Mr Claw,

        My sentiments exactly.

        Recently around 2150 there have been a few house sales and in many cases the ‘For Lease’ sign appears straight after the sale.

        Very consistent with the data that has been noted on MB recently that activity in the market is largely investor driven.

        The bit that I have found amazing is the yields that new ‘investors’ seem willing to tolerate.

        One house that sold for $856K was immediately listed for rent at $650 and was on the market for several months before finding a lessee (so it may have gone for less than $650 – $600 was closer to the market).

        3.9% gross? Very strange.

        But the idea that even $600 is a reasonable rent for what was a very humble abode remains beyond the pale.

  6. If you’re a low-income renter, there’s still a crisis.

    Speculation has distorted the shape of the rental market – specifically, by changing the stock of properties held in the rental sector.

    Speculators tend to go for the properties with supposedly high prospects of capital growth – which tend to be higher value, higher rent properties – and give the lower value, lower rent stock a miss.

    So, over time, as properties have been bought and sold, the low-value stock in rental has become scarcer, and less cheap to rent.

    Not only that, the stock of renters has changed too – specifically, there’s more high income tenants (they’ve been priced out of owner-occupation by the speculators). These higher income tenants outcompete the lower income tenants, and occupy a lot of the relatively affordable stock (can’t blame them, but it means the lower income tenants have to look at renting unaffordably).

    Sixty per cent of low-income households in private rental in New South Wales pay more than 30 per cent of their incomes in rent (ie ‘housing stress’). That’s about a quarter of the rental market. Still a crisis.

    • Good comment Chrism. The engineered shortage of housing has basically priced-out the poor from Sydney.
      This wouldn’t matter so much if there were cheap towns and cities that they could move to. However almost every town and city has engineered shortages and high prices too. I think Cobar is one exception.

    • +1.

      You also have the issue even within the middle income groups, there are those trying to rent+save, competing for rentals with those renters that don’t save (ie those spending a large % of income on getting a nicer quality rental today, and to hell with what they are going to do in retirement).

      But of course that doesn’t matter because the effect of these people getting old isn’t going to happen for 30 years or so. Their excess cosumption today is goosing the service sector quite nicely today however.

      Next train along the tracks a new generation of elderly living in abject poverty, compared to the boomers of today who will be quite well off.

  7. I read that alot of landlords (spruikers) threaten to raise their rents to offset any hit to the pocket they might receive… When the stock available is as it is, its simple to threaten to move while explaining to them that the house only needs to be empty for a week or two before they have already lost any gains they stood to make off raising the rent.
    Precisely what I did, and I am laughing at the specufestors as their worlds come crumbling down! 😀

  8. Forrest GumpMEMBER

    With the Investment in Mining now past its peak, and no new investment coming down the pipeline, we have less than 2 years before the employment bonanza in the “Mining” industry completely falls off the cliff.

    All the major Mining players that employ the direct and indirect workers in the construction of their “mining” assets have all pulled the pin on further investment.

    Each mine site under construction has direct employment of around 3,000-4,000 workers. There are an additional 5,000 indirect that are in the support roles as engineers, suppliers and sub contractors.

    Do the maths on this, with FMG, BHP’s outer harbour, RIO’s Cape Lambert, Brockman and Roy Hill’s new mine all wrapping up within the next 2 years. This equates to over 100,000+ workers that will be impacted, many that will lose jobs. Most of the job losses will be the big earners on FIFO.

    Those like me that have migrated to the West for the boom will leave WA and head for greener pastures, therefore leaving my rental property.

    I personally know of hundreds that are like me, of whom have refused to buy into this bubble knowing full well the bubble will burst and the rental market will also collapse.

    The countdown has begun, T minus 2 years and counting.

  9. This looks like it will see a reduction is our overpriced rental market, and without any prospect and capital growth (and likely to be capital losses), housing prices should move closer to valuations based on rental yield, and lack any speculative premium.

    Capital losses with arise throughot the balance sheets of many. Additionally, these carried forward losses will likely impact on realised capital gains later in the decade, imparing government receipts beyond a declining economy.

    Much pain to be felt, and those heavily leveraged with feel despair.

    But every cloud has a silver lining. One extra suicide is one less old aged pension.

  10. 2 years ago I was 100% RE, now I’ve sold 70% of it and reduced leverage to zero. I owe nothing, not even credit cards, and my investments are mainly cash in bank. Not sure if there’s gonna be some kind of crisis, but if there is that’s how I want it to find me. Αnd if there isn’t… well that’s great news 🙂

  11. Tassie TomMEMBER

    It’s interesting that, in each of the 3 series (Apr ’12, Mar ’13, and Apr ’13), that Melbourne is the only city with rental vacancy rate over 2%, and they have been above 2% for the last 13 months while all other cities have been below for the last 13 months.

    I guess the point of that comment is that “national vacancy rate” makes a good headline but possibly isn’t that meaningful.

    It’s also interesting to see that Melbourne’s vacancy rate has hardly moved even with all of their well-publicised new housing coming on-line. I’ll be keeping an eye on how these stats progress.

    • thomickersMEMBER

      The 2% vacancy rate underestimates the rental oversupply for the middle income earners in Melbourne

      If one is struggling for finding a rental in inner Melbourne, one hasn’t done their homework (ie barter the lease).

  12. Rental vacancy rate is a headline measure which does not give a qualitative view of the rental market and renters, i.e. supply and demand.