The Australian rental market has made a substantial shift since the first interest rate cuts during the global financial crisis in September 2008.
Data has revealed the most affected was Gen Y (aged 18 to 24), who experienced record highs of unemployment, increased reliance on government benefits and salary growth only marginally over inflation.
The economy began to emerge again in 2009; however, consumers were still wary of spending in the belief that their personal circumstances had declined.
The rental market changed substantially, yet younger investors still appear to be driven by the same factors they were – even before the GFC.
Surveys show one in three Gen Ys believe they will never be able to afford to buy and trends show that as early as 2006 they were staying in the family home much later. However, it appears that since the GFC this has elongated and left a sizeable void in the lower end of the market.
Now, with borrowing restrictions and large deposits now required, staying home later has become the norm for Gen Y. The shift has left higher vacancies in the lower end of the market, which historically has been the strongest sector, while the middle has emerged as the worthy alternative.
This is clearly evident in recent vacancy rates, which show family homes are experiencing the tightest vacancy rates while townhouse and units are experiencing record highs.
A unit maybe more affordable than a house, however; negative gearing may be an option – if it’s still around; that’s for another day.
Investors, now more than ever, must look at the demographics of the area they will potentially buy in; knowing the probable target market has become imperative. The considerable decline in this sector of the prospective tenant pool may substantially affect their ability to lease their new investment.