Vacant apartments hulk over Sydney and Melbourne

As readers know, Sydney (3.5%) and Melbourne (3.8%) are currently experiencing high rental vacancy rates:

SQM Research has updated its new weekly rental listings data, which shows the dramatic lift in apartment listings across both Sydney and Melbourne.

You can see from the next chart that detached house rental listings in Sydney are fairly tight (7,848), whereas there were a whopping 22,246 units available for rent as at 25 October:

In Melbourne, there are currently 8,175 detached houses available for rents versus a whopping 21,889 units available:

As noted in my recent report, NSW is facing a bigger supply glut with 42,000 net dwelling additions versus a 2,000 population decline forecast in 2021 and 34,000 net dwelling additions versus 7,000 population increase forecast in 2022:

Victoria also faces a growing supply glut with 51,000 net dwelling additions versus 13,000 population growth forecast in 2021 and 48,000 net dwelling additions versus 30,000 population increase forecast in 2022:

Thus, we expect the collapse in immigration and international student numbers to drive vacancies up further.

Unconventional Economist
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Comments

  1. For the last few years we’ve been hearing from the property lobby that Australians are increasingly “choosing” to live in apartments but it looks as though, given the choice, nobody wants to live in them.

    • Just look at the price of a house vs a unit in a similar location.
      Sydney, Singapore, Wagga, Wherever. Price tells you that houses are greatly preferred to units.

      Of course units have advantages and perhaps 5% – 10% of people prefer a unit to a house. That minority is easily satisfied by building a few units or similar.

      If you know people who live in a unit, or who have lived in one, they can tell you the benefits of living in a unit:
      * generally close to public transport
      * close to high population and many shops
      * easy to find a babysitter if you are friendly and know your many neighbours
      * easy to lock and leave for a holiday.

      However many people who live in a unit want to change to a house.
      By contrast very few people living in houses want to change to a unit.

      I’ve lived in both and a prefer a free-standing house with yard, offstreet parking and room for a pony (or rather chooks in my case)

      • Initially I owned a well located unit. When I could afford it I bought a very well located house. I’d never go back to a unit. The feeling of ownership and privacy you get in a house — no shared driveways and other common areas — as well as no body corporates — just your own piece of the world to call your own. I’d never go back.

        How sad that this is now regarded as a luxury just to satisfy the ‘big Australia’ fetish donors of political parties.

    • The reason people from Europe move here is for a free-standing home, a yard and a pool. In a nutshell.

      If you want to live in an apartment Europe is a far better place to live. For the career-orientated, no kids, love travel types, it’s bliss.

  2. pfh007.comMEMBER

    3.5 and 3.8% are NOT high vacancy rates.

    Considering we have seen in Perth the benefits of persistent vacancy rates higher than 5% it is baffling why anyone would call 3.5% high or use words like glut etc.

    It should also be perfectly clear by now that a fundamental objective of public policy should be a MINIMUM vacancy rate of at least 4% at ALL times.

    Who cares if at any one time 4 or 5 houses / apartments in every 100 are vacant?

    It certainly beats the usual vacancy rates of 1-2 houses in every 100 being vacant. Which is still the case in most post codes across Australia.

    Having a reasonable buffer stock means that landlords must compete harder for tenants either on price or quality.

    The property and debt peddler industries loves a persistent shortage but that does not mean anyone else has to fall for their hocus pocus.

    Build baby build and keep the borders shut until the national average vacancy rate is at least 5%.

    • I remember reading a REIT Apartment Investment prospectus many years ago while living in the US.
      The number that sticks in my head is 87% occupancy (as in 13% vacancy) this was the critical point at which it made no sense to build additional apartments.
      This is how a well supplied market behaves, less desirable stock sits vacant and eventually gets torn down to make way for new stock, Australia’s problem is that were still nowhere near this turning point. We need to see Aussie landlords fret, worry and despair, we need to see landlords wonder if they’re going to make next weeks mortgage, we need a situation where the landlords only chance of selling the apartment complex for a profit is if every tenant is happy and the place is fully occupied.
      It’s amazing how self interest (selling out for a good price) acts as a motivator to fix all the little things that are wrong, it’s amazing just how much can be achieved when all parties interests are aligned (tenant, landlord and prospective buyer not to forget the state and local councils).
      Of course we could try the Aussie way…but wait a minute that’s what got us in this predicament.
      So if you’ve got an apartment to sell call me when the vacancy rate is greater than 13% at this point I suspect we’ll be able to agree on a fair price.

    • it really depends on how you calculate vacancy rates… is it 3.5% of properties that the property managers look after? is it 3.5% of all property that could be rented? is it 3.5% of a number picked out of a hat? knowing the way the RE industry calculates clearance rates I would suggest its highly under stated.

    • Spot on pfh. The reality is that any ‘glut’ simply exposes the low quality, unmaintained stock and forces landlords to pick up their game. A flight to quality is a good thing and more supply spurs this on. It encourages good development in the first place because people can be discerning and choose something that is right for them and of a good standard, plus it also encourages renewal/refurbishment of old stock that will otherwise stay vacant. But to get to this point, there needs to be more stock to make a lasting impact.

      Sydney as a whole has been undersupplied for two decades, with the exception of localised oversupply due to significant development in a certain area. If a developer/landlord doesn’t pick up their game, they don’t sell/rent their stock or they get less for it. It is far too simplistic to look at either the NSW or VIC markets as one and draw a conclusion from this – it is far more nuanced.

      • don’t forget that developers (and landbankers) are rewarded for keeping stock off the market.
        a simple land tax would go a long way towards correcting for this imbalance b y creating a holding cost which (if well thought out) would exceed the value that land bankers derive from withholding residential land from the market.
        Basically all available stock (residential land) would be built on and furthermore the first to build would probably get the greatest return …that’s a little different from Australia where we reward the last person to develop with the highest returns.
        But to be fair, for this to work developers also need certainty and in Australia’s NIMBY culture /uncertainty creates a cost which average house buying (renting) Aussies pay in one way or another.

  3. “Thus, we expect the collapse in immigration and international student numbers to drive vacancies up further.”

    No. There is a huge demand for apartments, and a limited supply. If you look at your own graphs, the Sydney vacancy rate is already falling, from 4.0% to 3.5%.

    • How does the rent on an apartment compare to the old-age pension?

      How many unemployed job-seekers need to share an apartment to make it workable?

      Can a skilled-shortage-vacancy-filling-food-delivery-driver afford to rent an apartment and raise a vibrant family there?

  4. How does the rent on an apartment compare to the old-age pension?
    EXPENSIVE depend on demographic
    How many unemployed job-seekers need to share an apartment to make it workable?
    10 per 2 bedder- bed share
    Can a skilled-shortage-vacancy-filling-food-delivery-driver afford to rent an apartment and raise a vibrant family there?
    No unles 4 families share a 2 bedder

  5. WORKING FROM HOME … AN IRISH PERSPECTIVE …

    Philip Nolan: Working from home could just be the thing to save rural Ireland … Philip Nolan … Extra.Ie

    https://extra.ie/2020/10/29/must-see/working-from-home-rural-ireland

    There was a time, and it wasn’t too long ago, that employers were hugely resistant to the idea of allowing their staff work from home, even on one day a week. The perceived wisdom was that it would create a nation of skivers doing the bare minimum possible, without supervision, to justify their existences.

    Then along came a little virus and suddenly the entire mindset shifted. In a vast number of workplaces, especially those in the services sector, employers had no choice but to let employees work from home, and while the effects of that have yet to be assessed over a reasonable period of time, one stark new fact suggests the way we work will change forever.

    As we report today, 37% of businesses are planning to downsize city-centre offices and replace them with smaller satellite offices in rural locations, and while that might not be exactly the same as working from home, it suggests that employers have finally cottoned on to the fact that quality of life also is a major driver of increased productivity. … read more via hyperlink above …
    .
    .
    Access recent MB postings …

    https://www.macrobusiness.com.au/2020/10/bad-news-for-commercial-property/#comment-4015162

    AUSTRALIA … BAD NEWS FOR COMMERCIAL PROPERTY …

    … What are the vacancy trends of the New Zealand metros ? …

  6. How many empty apartments that are because the foreign buyer is no longer willing to settle? How long does the builder have to wait to go through the legal process to be able to resell the apartment?

    I look out a thousands of apartments from my balcony and there’s plenty of older ones with no lights on at night, and the new Melbourne Square building still looks to be 70%+ empty. The rent for those apartments is already down from asking $400 in May to $330 or lower.

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