John McGrath – Rental shortage & rising rents: What it means for investors and tenants
It’s a good time for investors to get into the market before the return of the overseas investor, which will push up prices.
Properties are selling for at least a 5% discount in many parts of Sydney and Melbourne. Queensland has been holding up a bit better but the state will probably see a similar correction eventually. The pullback might be up to 10% on the East Coast, but we are not going to see a major crash.
People worry about interest rates, but if they level at around 4% that is still half historically what Australians have paid.
Apartments are offering the best value for investors because they did not go up as much as houses during the boom. However, over the long term, capital growth of houses will always outpace apartments due to the lack of land. They can always build more apartments.
It’s also a good time to buy because we’ve seen a tightening in the rental market across the board. Our own vacancy rate at McGrath across our Eastern Seaboard office network is 1%-1.5%, which is very low.
CoreLogic data shows the supply of rental homes is decreasing while demand is increasing. New rental listings are 15% below the five-year average and total rental listings are 36% below average.
Supply has decreased because of a downturn in investor activity that began in 2015 and accelerated between 2017 and 2020. In addition, we’re now seeing some properties that were rented long term during the pandemic convert back to Airbnb or Stayz rentals because people are holidaying again.
There’s also been a big increase in demand in regional lifestyle markets due to an influx of relocating city dwellers. These are the areas that have had the biggest increase in rents. Returning overseas migrants and students are bringing more demand and pushing up rents in the big cities, too.
Let’s look at the data in CoreLogic’s latest Rental Market Update. The annual changes in rental values along the Eastern Seaboard for the 12 months to April 2022 are as follows:
- 11.1% in Brisbane and 12.5% in regional Queensland
- 9% in Sydney and 10.7% in regional NSW
- 9% in Canberra
- 8.9% in Hobart and 12.2% in regional Tasmania
- 6.4% in Melbourne and 8.9% in regional Victoria
I don’t think we’ll see a major increase in rents from here. A lot of people won’t be able to pay more.
If you’re a tenant whose landlord wants to put up the rent, you can always try negotiating for a lesser increase. If you look after the property and pay rent on time, remind the landlord of your reliability. If you can’t afford the increase, explain that and see if they’ll be empathetic.
Nothing zaps a landlord’s profits faster than vacancies. Remind the landlord that if you have to move out, it will likely cost them at least a week’s rent. That’s the typical time it takes to turn over a lease.
However, you do need to accept that sometimes the market will be in your favour and you’ll get a great deal on the rent, and sometimes it will be in the landlord’s favour, enabling them to earn a bit more on their investment.
The majority of landlords are not rich, as is often the perception. They are ordinary mums and dads with just the one negatively-geared investment property that they hope will pay for their retirement.
So, look at the situation objectively and be fair and reasonable. Go online and look at other rental properties in your area. Are they going for a similar amount to the new rent your landlord is proposing? If so, that’s a clear sign that the market has moved, but you can always try negotiating.
You have other options, too. You could move to a cheaper area, or downsize to a smaller and cheaper property in the same area, but remember moving costs money, time and energy. Is it better to review your weekly budget and see if you can find the extra money?