ABC does the Sydney and Melbourne rental smash

ABC News has provided a useful update on the rental smash taking place in Sydney and Melbourne:

…the latest rental vacancy data from SQM Research shows the pandemic is taking a harsher toll here than other capital cities.

The vacancy rate (the percentage of available properties not yet leased) has almost doubled in the 12 months since September last year, rising from 2 per cent to 3.8 per cent.

The average rent has also declined sharply along with that reduced demand.

It’s created what real estate agents might call a “renters’ market”…

While Melbourne’s renting scene has been hit hit, analysts say it’s still too early to say if the market has bottomed out…

“Elevated rental vacancy rates in Sydney and Melbourne continue to push city rents downwards,” SQM Research managing director Louis Christopher said.

“This is particularly the case in the CBD and inner-ring suburbs close to the CBDs.

The collapse in immigration most certainly suggests that vacancy rates will climb and rents will fall across both major markets.

Based on the 2020 federal budget’s population projections and assuming dwelling construction rates fall to decade lows, both Sydney and Melbourne are facing gigantic supply gluts.

NSW is expected to have 42,000 net dwelling additions versus a 2,000 population decline in 2021 and 34,000 net dwelling additions versus 7,000 population increase in 2022:

Victoria is facing 51,000 net dwelling additions versus 13,000 population growth in 2021 and 48,000 net dwelling additions versus 30,000 population increase in 2022:

That’s an enormous amount of stock coming onto the market with few people to fill it.

Unconventional Economist
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Comments

  1. pfh007.comMEMBER

    Wake me when the national average vacancy rate is 5%.

    Maintaining a vacancy rate of 5% will introduce a very healthy level of competition to the rental market which in turn will have a very positive effect on the housing market.

    Keep building and keep the borders sealed tight.

    • billygoatMEMBER

      Seriously just more of these stories please:)
      Rents cannot be smashed enough…hopefully circa 1985

      • Exactly. Rents are a very good indicator of the level of shortage of housing.
        We currently have extremely high rents in Sydney, and this indicates an extreme shortage of housing.

        In Sydney, a granny flat rents out for nearly as much as a granny’s pension. What kind of crazy shortage causes that?!

        For many years shortage-deniers have denied that rents are driven by the shortage. There typical nonsense runs like this:
        * There is an abundance of housing and no shortage at all
        * excessive credit has causes house prices to rise into a bubble
        * bubble prices cause greedy owners to ask exceptionally high rents
        * tenants can easily pay the exceptionally high rents, which are not actually that high compared to [insert nonsense here] and therefore this debunks the shortage myth.

        However now along comes covid19 and reduced immigration and suddenly rents have started to fall. So it appears I was right all along and the shortage-deniers were wrong. It is now obvious that demand for housing does affect rents. High demand = high rent. Lower demand = lower rent.

        • Forrest GumpMEMBER

          Rents are more an indicator of tax benefits the investor obtains even when the property remains vacant.

          Remember you can still claim negative gearing when the property is vacant. So price is not the only indicator of the rental market.

          Most investors are oblivious of how negative gearing works. I play a game with my work colleagues many of whom are investors. No-I dont work at Domino’s or Coles. Most-if not all, don’t understand negative gearing.

          Most have no idea of their ROI.
          Most dont even know what ROI is
          Most believe that NG gives them back ALL their losses
          Few-if any understand that NG only reduces taxable income. And fewer understand what that means.
          Basically, they are blinded puffy chested investors that scoff at the notion that they only get back less than half their losses, and leave it to the accountant.
          So where does that leave the rental prices.
          Simple. Speculators are like fishermen. Objective to land the highest paying tenant.
          When they dont get any nibbles, then slowly drop the rent until they get a nibble.
          While they have income and pay taxes, some of these losses are captured in NG.
          However, these speculators get into hot water when their NG losses exceed their tax paid. As is the case now with reduced working hours. (hence reduce tax paid)
          Only then the rooster comes home to roost when the accountant tells them they cant claim their $30,000 in losses. Because they never paid that much tax in the first instance! Then the penny drops!

          Give it time. Another 6-12 months of these conditions, particularly just after tax time when dumb dumb investors realise their losses are not covered.

  2. I guess that a portion of tenanted properties are occupied only because of rent holiday and eviction moratorium. Whole newly completed complexes empty but show only one or two as vacancies.
    More good news to come

    • Yep, the picture has been somewhat muddied by these temporary measures designed to prevent the cards falling where they may.

  3. Solution for the landlords – Remove Negative Gearing. Without NG, rents will go up. Right?

  4. Yet house prices started rising and townhouse developments and urban fringe housing developments selling like hotcakes.

    Buyers are more owner occupiers and less investors.

    Does this show that nobody wants to live in an apartment long term, even if it’s near the city?

    • It beats me how at least one section of the market isn’t under a lot of pressure. Perhaps there is a heap of money ‘coming home’ from abroad as Strayans repatriate?

  5. Anecdata – recently decided to move out of a small loft apartment in Manly and give Wollongong a try with the WFH thing. Near new 3 bed 2 bath 2 car near the beach for only $100 more per week.

    Bumped into my neighbour a week ago and noticed he was moving out. Doing exactly the same thing but central Coast and will drive to Bella Vista one day per week.

    Anyone else thinking or noticing the same?

    • I know a young couple with two kids who have been renting in Ascot Vale, VIC, and are moving to Ocean Grove beyond Geelong where they’ve bought a fixer upper. He’s in tech so can WFH most of the time but is fine with taking the train into Melbourne a couple of days a week if necessary.

      I’m also in tech (software development) and have been WFH since the end of March in inner west Melbourne. Don’t miss the commute or CBD at all. I’ve been managing with 4G internet but am looking forward to upgrading to 100/20 FTTC NBN next week.

      If my employer were to require 100% onsite when Manchurian Dan allows it I’d quietly start looking for a new job that allows at least part-time WFH.

  6. The decrease in Syd/Mel is directly exported to the NT.

    We are being smashed with southerners at the moment.

    Its great for my business and I have my happy face on. I don’t know how long its going to last but I’m ride this pony till it drops.