VACANCY rates in the rental market remain historically tight but are starting to drift upwards, according to the Housing Industry Association this week.
There has been considerable variation in the growth over the years with both the early 1990s and the early 2000s characterised by rather weak increases. From the mid-2000s, the pace of rental increases accelerated and reached an annualised level of nearly 9 per cent in late 2008.
The pace of growth subsequently slowed but has remained well above its long term average over recent years.
Vacancy rates came under particular pressure through 2007, with an upsurge in rental inflation following. The coming of the GFC saw a loosening of capacity in the rental market, but vacancies began to tighten again in late 2009.
Latest data indicate the number of vacancies has been drifting upwards, although vacancy rates are largely steady.
From around 2000 to 2006, income grew at a consistently stronger rate than rental costs resulting in a sizeable decline in the household rental burden.
However, the insufficient supply of new housing started to make an impact from 2007 onwards. From this period onwards, rental costs as a proportion of household income have increased. Relative to incomes, rental costs are about 5 per cent cheaper today compared with two decades ago.
House prices have grown considerably faster than rents over the past two decades. However, the long term decline in interest rates over this period means that this divergence is not unwarranted.
Economic growth will slow and financing conditions remain restrictive, says the HIA, while new housing supply will be of an insufficient magnitude to redress the shortage of dwellings.
‘‘Our analysis shows how movements in rental prices are strongly determined by interest rate movements, migratory trends and economic prospects. Over the next year, interest rates are likely to remain largely steady,’’ the HIA says.
‘‘Net inward migration will remain strong, though at lower levels than during the early part of the GFC. The condition of the rental market will rest on interest rate developments, the economic outlook, migratory trends, and the rate at which the recovery in new housing supply occurs.’’
On balance, the HIA says, it appears rental price growth will remain relatively brisk for the foreseeable future.