Rental crisis to be with us for 'years and years'

Australia’s rental crisis has plummeted to a new level with national vacancy rates hitting a record low of 1.02% in October.

It comes as little surprise when Australia’s population growth has hit new record levels, boosted by a huge increase in the immigration deemed necessary to meet the lack of skilled and unskilled labour that our economy is begging for to keep it growing.

The first point of call for immigrants is a rental property and, add to that the fact Australia’s home ownership has been in decline as a percentage over a decade, we see the demand for rental properties increasing astronomically.

But sadly, at the very time we need more rental properties, supply is in decline.

Any attempt by governments to build additional rental accommodation is years and years away, so there is almost complete reliance of the private sector to supply the incredibly high rental demand.

But like any commodity market in the world, pricing is totally aligned to the balance of supply and demand. No surprise then that rental rates across the country have been soaring.

The forecast by researchers is for significantly more price hikes to come, with an estimated 30 per cent increase in apartment rents alone over the next five years.

Landlord incentives to provide rental housing has been overwhelmingly successful over the past 25 years and landlords today are actually better off than ever.

The Economist recently undertook an analysis of OECD data to compare the proportion of households that are seeing very high levels of rental stress.

Australia is faring relatively well - not as good as France or Germany but remarkably better off compared to New Zealand, Britain and the United States.

We have seen rents surge post-pandemic. From Singapore to London and to smaller cities in between, the end of the pandemic resulted in double digit rental increases.

While we are coping reasonably well in comparison to the rest of the world, the worst of the housing crisis is still in front of us and unless private investors get into the rental market in greater numbers, and quicker, our rental crisis is only going to get worse.

And what might be a surprise to most is that the Reserve Bank Governor Ms Bullock said recently that renters and low-income households are actually better off than they were two years ago, despite high inflation and rapidly rising rents, as strong employment, and income growth shields people from the worst of the cost-of-living crunch.

This means that with rising incomes the capacity for high rents is still there so landlords can expect not only to continue to receive excellent returns but, with the expected downward trend in interest rates taking effect in about 12 months’ time, that returns will increase significantly.

Real estate still stands out as the best and most secure investment when you marry together the annual yield and the capital gain but a lot of investors have been somewhat spooked over the last couple of years with so much confusing data.

The surge in interest rates has been abetted by some of the silly proposals promoted by a number of state and Federal Government representatives who have naively put forward legislation that will actually worsen the housing crisis rather than improve it.

There’s no question the rental crisis is going to remain newsworthy for years and years to come.