In a land­lord’s mar­ket, ten­ants face a dou­ble whammy: slim pick­ings in prop­erty and a rent hike this year, re­ports Mau­rice Dun­levy

The Weekend Australian - Review - - Primespace -

THE good times roll on for land­lords, but spare a thought for their hap­less ten­ants. That’s be­cause the flip- side to Aus­tralia’s low­est res­i­den­tial va­cancy rates in two decades is an ex­pected 15 per cent rent hike dur­ing the course of 2008 as in­vestors cash in on near­record rental prop­erty short­ages, and pass on their higher bor­row­ing costs.

And pay­ing more isn’t the only big is­sue con­fronting Aus­tralian renters.

A big­ger chal­lenge could be find­ing a roof to put over their heads in stock- starved rental mar­kets where re­cent of­fi­cial and un­of­fi­cial in­ter­est rate hikes and 5 per cent gross yields have done lit­tle to re­store in­vestor con­fi­dence that’s been in short sup­ply since the 2004 hous­ing col­lapse.

In Queens­land alone, 30 per cent of all new apart­ment projects were aban­doned last year on the back of poor pre- sales and tougher de­vel­oper lend­ing cri­te­ria, so it’s no ac­ci­dent that land­lords are do­ing best in Bris­bane.

Strong in­ter­state mi­gra­tion and a boom­ing jobs mar­ket have led to Queens­land’s short­fall.

It isn’t the only state with a rental hous­ing short­age.

For the rest of Aus­tralia, over­seas mi­gra­tion is fu­elling record de­mand for rental ac­com­mo­da­tion at a time when 25,000 fewer new homes will be built than four years ago. In Syd­ney in Fe­bru­ary, va­can­cies fell be­low 1 per cent for the first time,

The 2004 end to the hous­ing boom saw 174,000 homes built across Aus­tralia. At the same time, about 100,000 mi­grants ar­rived on our shores.

This year, like last, 150,000 new homes will be built, but mi­grant num­bers will to­tal about 180,000.

A sim­i­lar take on the rental mar­ket comes from prop­erty an­a­lysts RP Data.

In the 10 years be­tween 1996 and 2006, Aus­tralia’s to­tal private hous­ing stock in­creased by 16.9 per cent, but the num­ber of dwellings rented through real es­tate agents in­creased by 39.9 per cent as hous­ing af­ford­abil­ity be­came an is­sue in all parts of Aus­tralia.

Un­will­ing renters, ac­cord­ing to RP Data re­search di­rec­tor Tim Lawless, are now in the lose- lose sit­u­a­tion of not be­ing able to af­ford a mort­gage and hav­ing to pay higher rents.

Lawless says that in Syd­ney, where ser­vic­ing a mort­gage now con­sumes 38 per cent of av­er­age fam­ily in­come, house and unit rents have risen 12.7 per cent and 12.9 per cent re­spec­tively over the past year.

Nev­er­the­less, in vir­tu­ally all ar­eas around Syd­ney it is still much more af­ford­able to rent a home than buy one, with weekly in­ter­est pay­ments greater than rents, par­tic­u­larly in af­flu­ent parts of the har­bour city.

He says the Can­ter­bury- Bankstown re­gion is the only part of Syd­ney where renters have a chance to save money by buy­ing, with av­er­age rentals of $ 340 a week com­pared to an av­er­age loan re­pay­ment of only $ 306.

Lawless says that his­tor­i­cally, there has been a bal­ance be­tween rental and mort­gage rates.

‘‘ When rents get too high, peo­ple will buy a home,’’ he says.

In Syd­ney’s outer sub­urbs, rents are in­creas­ing but house prices aren’t mov­ing.

‘‘ Peo­ple are get­ting rental yields of 6 per cent in some of those outer ar­eas — and it is in some of th­ese sub­urbs that peo­ple are likely to shift from rent­ing to buy­ing,’’ he says.

Lawless says the outer west was caned dur­ing the Syd­ney hous­ing down­turn, with no house price growth since 2004.

He says the re­gion now shows rental yields of 5.5- 6 per cent. De­spite ris­ing in­ter­est rates, Lawless be­lieves 2008 could see a resur­gence of in­vestors in the hous­ing mar­ket.

‘‘ There are ar­eas like Camp­bell­town and Cam­den that are ear­marked for res­i­den­tial growth.

‘‘ Some­one think­ing about spend­ing $ 1 mil­lion on a beach house may be bet­ter buy­ing three homes there; there’s bet­ter rental po­ten­tial and medium to long- term growth.

‘‘ From a ten­ant’s per­spec­tive, I think a lot of ten­ants will try and lock in their leases for at least a year.’’

In Bris­bane, re­searcher Michael Ma­tusik pre­dicts a sim­i­lar trend as ten­ants at­tempt to stave off rent rises. Bris­bane’s cur­rent av­er­age res­i­den­tial lease term is only 13 months, but ac­cord­ing to Ma­tusik, in Bris­bane and other cap­i­tal cities there has al­ready been a move to com­mer­cial- type leases where res­i­den­tial ten­ants sign for two years, but po­ten­tially stay for four through two- year op­tions.

He says such leases com­monly con­tain rent rises fixed to Con­sumer Price In­dex move­ments, plus 1 per cent.

‘‘ Real es­tate agents don’t like it be­cause they make money from chang­ing ten­ants, but in­vestors do be­cause they like se­cure te­nan­cies and are will­ing to trade off re­turns to get them.’’

Ma­tusik says re­cent re­search in­di­cates Bris­bane now has one of the tight­est mar­kets for rental ac­com­mo­da­tion in Aus­tralia.

A 2007 study in an al­ready tight­en­ing in­ner- Bris­bane mar­ket found 59 per cent of rental prop­er­ties had one or more spare bed­rooms, which is the type of shared ac­com­mo­da­tion pop­u­lar with sin­gles want­ing to live close to where they work in the CBD.

A year on, and a 10 per cent rent rise later, there are vir­tu­ally no empty bed­rooms in in­ner Bris­bane, par­tic­u­larly around rail­way sta­tions, a sit­u­a­tion with dire con­se­quences for renters, ac­cord­ing to Ma­tusik.

With rental va­can­cies now down to 1.5 per cent, he sees no let- up ei­ther this year or next, with likely rent rises of at least 15 per cent, and pos­si­bly more.

Af­ter a decade of lim­ited rental growth, Ma­tusik be­lieves ten­ants have the ca­pac­ity to pay more.

Last year, a Ma­tusik study found ten­ants spent only 26 per cent of their in­come on rent, sig­nif­i­cantly be­low the 30 per cent- plus re­pay­ment thresh­old com­monly ac­cepted as the point of mort­gage dis­tress for home buy­ers. Like other ex­perts, Ma­tusik blames Bris­bane’s rental ac­com­mo­da­tion cri­sis on a 20 per cent short­fall in the num­ber of new homes be­ing built across Queens­land.

He says the short­age is be­ing felt across the state, but in­ner Bris­bane and the Gold Coast are the most af­fected.

Robert Mel­lor, man­ag­ing di­rec­tor of eco­nomic re­searcher BIS Shrap­nel, pre­dicts sig­nif­i­cant so­cial changes from the hous­ing short­fall.

‘‘ We’re go­ing to con­tinue to see a higher pro­por­tion of young peo­ple liv­ing at home with their par­ents, or in group house­holds, be­cause they can’t af­ford to pay higher rents,’’ he says.

‘‘ Ba­si­cally we haven’t built enough homes since 2004 and, since then, it’s been a shuf­fling of the deck chairs.’’

With NSW con­struc­tion at its low­est ebb in 28 years, Mel­lor says it is dif­fi­cult to see a quick re­cov­ery, al­though ris­ing rents will be an in­cen­tive to in­vestors.

Nev­er­the­less, over the next 18 months, BIS Shrap­nel pre­dicts no change to the num­ber of houses and apart­ments be­ing built in NSW, and only a slight im­prove­ment in Queens­land.

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