Rental market tightening. But for how long?

SQM Research has released its rental vacancy data for February, which registered a 0.1% decline in vacancy rates over the month and a 0.2% fall over the year:

Most states recorded falling vacancy rates with the exception of Hobart, which recorded a 0.3% increase.

SQM Research is predicting further declines in vacancy rates given the collapse in dwelling construction. That is, unless Australia enters into a prolonged economic depression:

February marks the start to the new year in the property industry and gives us a clearer picture of the rental market. The decline in vacancy rates is a reflection of a seasonal increase in rental demand plus ongoing decline in dwelling completions and the ongoing increase in population. We are likely to record further declines in rental vacancy rates as 2020 progresses unless the country enters into a prolonged economic depression.

CoreLogic also confirms a tightening rental market, with rental growth accelerating on falling supply:

The next chart plotting dwelling construction against population growth highlights why, with dwelling approvals and commencements crashing amid still strong (albeit softening) population growth:

As noted by Louis Christopher, while pure housing fundamentals point to a tightening rental market, the sharp economic downturn from the coronavirus could actually create slackness. This is because in times of economic stress, people are more likely to hunker down together to save on costs, thus turning a shortage into a surplus as the number of people per dwelling rises.

Leith van Onselen

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