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Are we gearing up for a rental frenzy?

By Bianca Dabu
12 January 2021 | 1 minute read
gearing up for a rental frenzy

The next several years “will produce the biggest increase in rents that Australia has seen”, according to a researcher.

While the rental market has borne the brunt of the COVID-19 border restrictions due to a lack of overseas migrants, Propertyology’s head of research, Simon Pressley, is forecasting 2021 and beyond will see Australia’s rental market hit an all-time record-high increase in household rents coinciding with an accommodation shortage.

With house price growth expected to reach up to 15 per cent, Mr Pressley said many parts of Australia could see rents increase by $2,000 to $5,000 per annum. 

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He argued: “The reality is that Australia does not have enough housing supply for its existing 25.6 million population… Most of Australia had an undersupply of housing prior to COVID-19. While this has managed to cause quite a bit of inconvenience for Australian lifestyles, it has not [the] ability to dump thousands of extra dwellings out of the sky.

“In other words, Australia is still undersupplied.”

While Sydney and Melbourne currently have a surplus of rental stock and are witnessing declining rents, other locations across Australia tell a different story.

According to the researcher, as of the end of October 2020, Sydney and Melbourne’s combined population of 10.5 million people had more than 53,500 dwellings for rent to choose from.

Conversely, the remaining 15.1 million Australians who live in smaller capital cities and regional areas only have the choice of a little over 20,600 dwellings.

While COVID-19 did reroute demand out of Sydney and Melbourne into other areas, Mr Pressley said that pressure on rents in other areas was building well before the pandemic.

“Throughout the rest of Australia, it is becoming standard practice for property managers to frequently receive numerous applications to rent a standard house,” he flagged.

“Buyer’s agents have seen firsthand proof of multi-offer tenant applications and the successful tenant paying $50 to $70 per week above the market’s median rent.”

Calling the pressure “intense”, he cited data that stated five out of eight capital cities currently have a vacancy rate below 1 per cent.

What’s the solution to the supply problem?

From Mr Pressley’s perspective, regional locations are likely to continue to see high rent increases as employment and lifestyle opportunities drive further demand away from the bigger cities.

Ultimately, he believes the two biggest influences on rental demand in 2021 are local economic conditions and affordability, while the supply side is “98 per cent determined by the behaviour of mum and dad property investors”.

This stance led the researcher to argue that banks and governments would need to support those who generate 98 per cent of Australia’s rental supply in order to address the rental supply problem.

For one, he is encouraging the Australian Prudential Regulation Authority (APRA) to introduce credit policy parameters to support responsible borrowers and be proactive in helping to improve loan application efficiencies.

This must also coincide with banks ceasing to charge investors a premium interest rate, Mr Pressley recommended.

Further, state governments are advised to refrain from charging investors higher stamp duty, while city councils should not be charging investors a premium on council rates.

Finally, Mr Pressley said that the federal government must conduct a serious investigation into the conduct of insurance companies to avoid “charging excessive insurance premiums, hiding behind fine print when a policyholder makes a claim, and rorting of real estate products”.

Are we gearing up for a rental frenzy?
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