In what could easily be confused as satire, Domain’s spruiker-in-chief, Doc Andrew Wilson, posted an amusing article yesterday falsely arguing that rental market conditions are tightening and about to “get tougher for tenants”.
Below are the Doc’s key arguments followed by my response.
Being a tenant in a capital city is getting tougher, and rents are set to increase.
Capital city home rental markets continue to tighten with rising demand from tenants pushing ahead of supply…
Most capital cities recorded falls in the total home rental vacancy rate with the exception of Adelaide and Canberra which were steady, and Perth which was the only capital to record a rise in the vacancy rate….
High levels of new building for both houses and units and strong investor activity are yet to impact the Sydney and Melbourne rental markets. Low numbers of first home buyers and strong migration have kept demand ahead of supply.
Most capital city rental markets now report tight vacancy rates well below 2 per cent for houses with Hobart and Canberra the lowest at 1.1 per cent and 1.4 per cent respectively…
Low and falling vacancy rates will continue to drive ongoing high levels of activity from residential investors.
The funniest thing about Doc Wilson’s spruik is that it came out at the same time as RP Data released its August rental report, which provided a bearish assessment of the rental market. Coincidence?
Of course, RP Data showed that rents were falling at the capital city level, down 0.4% in August and by 0.9% over the quarter. Moreover, annual rental growth had fallen to just 0.7% in the year to August, which is the lowest pace in records dating back to December 1995:
Unlike Doc Wilson, RP Data also forecast that rental growth and yields would continue to fall as record dwelling supply meets falling population growth:
With capital growth anticipated to continue to outpace rental growth we expect that rental returns are likely to push even lower over the coming months…
In fact there is the possibility that rental rates will start to fall on an annual basis over the coming months if the downwards trend persists. The large pipeline of residential construction activity as well as high levels of investment demand means people choosing to rent will continue to have more accommodation choices and landlords will have less scope to increase rents…
Furthermore, the slowing rate of population growth is easing rental market pressures and contributing to the slow rate of rental growth…
Hardly sounds like things are about to “get tougher for tenants”, does it?
Doc Wilson’s claim that rental vacancies are tightening is also spurious. Below is a chart showing the movement in SQM Research’s national rental vacancy rate on a 3-month moving average basis (in order to smooth volatility). As you can see, rental vacancies are trending up, and the vacancy rate is just below the GFC peak:
We also know that dwelling construction is booming just as population growth is falling:
So Doc, explain to me again how “being a tenant in a capital city is getting tougher, and rents are set to increase”? Because the data is suggesting the opposite.
unconventionaleconomist@hotmail.com
