Rental storm brews but deluge still to come
The first squalls have hit the Australian rental market, but the forecast is for stormier conditions to hammer the south-east coast of the country in coming weeks and months.
Australia’s rental vacancy rate lifted to 2.5 per cent in April, compared with 1.8 per cent a month earlier, putting significant downwards pressure on rent prices.
Sydney, Melbourne and Hobart are bracing for the most turbulent conditions in the nation.
The two largest cities recorded their highest vacancy rate in at least three years, at 3.9 per cent for Sydney and 2.8 per cent for Melbourne. Hobart’s vacancy rate more than doubled in a month, from a stifling low of 0.6 per cent to 1.3 per cent.
Job losses, closed borders and a wave of short-term listings such as Airbnb properties being converted to rentals are dampening the market.
Markets exposed to tourism, migration and job losses face the most challenges as the COVID-19 pandemic response unfolds.
Place Estate Agents director of property management Cathie Crampton identified Sydney and Hobart as being most susceptible to a rental market upheaval.
“Sydney’s costs of living and vulnerability to COVID job losses and wage reductions will affect rents, while Hobart has to endure a significant shift in the tourism sector,” the Brisbane-based Ms Crampton said.
“Within Brisbane, some inner-city suburbs such as Milton and Fortitude Valley are showing signs of pressure with higher than normal arrears rates, as the retail and food sectors have been more severely impacted there.”
Perhaps the clearest sign that Australia’s two biggest cities will bear the brunt of the COVID-19 rental storm are the differences in the increase in rental listings between the capital cities.
The number of properties for rent has increased 0.8 per cent across Australia. While Brisbane, Canberra and Perth recorded increases ranging from two to four per cent, inner Melbourne and CBD Sydney racked up staggering rental listing increases of 36.2 per cent and 34.1 per cent respectively.
Aussie Property senior property manager Laura Scott said the figures only told half the story.
“The vacancy rate in these markets is larger than we have seen before, so we have had to drop rents dramatically and even then it isn’t helping with leasing of the properties - unfortunately, a lot of these apartments will sit vacant until this (pandemic) is all over,” Ms Scott said.
“We have new builds nearing settlement, short-stay accommodation companies heavily hit and bringing these properties onto the market as long-term tenancies, students who cannot come back into the country exiting their tenancies, and now unemployed tourism and hospitality tenants who generally live in the CBD unable to pay their bills.
“When you put all of that together you have a huge oversupply of vacant apartments in the CBD, which is where pretty much all of our portfolio’s financial hardship cases have come from."
New migrants seeking rental housing has also stifled demand. Inner Melbourne had previously maintained stable rental conditions amid high housing supply because of rapid growth in international migration. According to ABS migration data, a remarkable 99.5 per cent population increase was attributable to overseas migration.
With new rental demand entirely dependent on overseas migrants, the decline in rent prices is hardly surprising.
Ms Crampton said a similar situation was playing out in Sydney, with apartments particularly hard hit.
“Rental reductions of as much as 30 per cent or more are being found in suburbs such as Bondi, where casual workers and those from overseas tend to congregate," she said.
“But other cities are proving more resilient, with the perception of an apartment oversupply proving a little mythical in Brisbane, where rents had been increasing pre-COVID with vacancy rates tight below two per cent."
The regional Victorian vacancy rate climbed from 1.8 per cent to 1.9 per cent over the month, however median house rents remain unchanged on $350 per week, with units rising to $295/week.
In Geelong, house rental prices shrunk by $10 to $400/week, the Ballarat region remained steady on $340/ week, while house rents increased in the Bendigo region by $7 to sit at $350/week.
Real Estate Institute of Victoria president Leah Calnan said the temporary measures in place due to COVID-19 made it challenging to gauge the real situation, but the underlying strength of the Victorian property market was undeniable.
“Victoria’s rental accommodation supply is growing, more rental homes are now available but there remains a need for more properties to be listed to cater for growing demand,” Ms Calnan said.
“The State Government needs to work more closely with property owners to help build a reliable supply of rental accommodation in Victoria.”