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Tough times ahead for inner-city unit landlords

16 February 2021 Grace Ormsby
apartments

An economist has warned that Sydney and Melbourne’s inner-city apartment glut is showing no signs of easing.

Archistar’s chief economist, Dr Andrew Wilson, has flagged a “clear prospect of high rental vacancies persisting into the foreseeable future”.

While it does mark good news for tenants, it’s not such a good thing for landlords.

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Citing data from My Housing Market, Dr Wilson said there are now more than 23,000 units up for rent in Sydney, and a further 20,000-plus vacancies in Melbourne.

Initially, unit vacancies were seen to soar after the building boom, which was compounded by the sharp fall in demand that occurred as COVID-19 caused the shutting of state and national borders.

Dr Wilson has acknowledged that border policies have severely curtailed rental demand from international students, with demand for short-term business and tourist accommodation also sharply declining.

Already saturated supply levels sprung even higher, with short-term accommodation landlords switching over to the permanent market in search of tenants.

But they aren’t the only reasons vacancy rates have skyrocketed, with the economist highlighting high levels of first home buyers, economic concerns and lockdowns as all playing a part in removing normal growth in new local tenancies.

It’s the inner-city suburbs that have been the most impacted by the trend, with Dr Wilson considering those suburbs as “overwhelmingly” contributing to both cities’ “ongoing apartment rental market glut”.

Falling rents are clearly good news for tenants, improving housing affordability and increasing disposable income, the economist did acknowledge, with high vacancy rates able to provide tenants with more choices, and better motivating landlords to provide higher-quality, improved accommodation.

But it does have its drawbacks. Dr Wilson has called the current marketplace as a “challenging” one for inner-city landlords, and warned that the situation is set to worsen, as government support initiatives wind down and the end of mortgage relief measures from banks looms ever closer.

With international borders remaining closed, and continued local lockdowns a real concern, Dr Wilson cautioned that “there is certainly no prospect of a sharp improvement in demand anytime soon that will push vacancy rates downwards and offset falling rents”.

Median unit prices across both cities are continuing to fall, meaning that it is likely landlords are increasingly struggling to meet their outgoings and are forced to sell, according to the economist, which could see “significant numbers” of unit sales in the not-too-distant future.

The statistics

The City of Melbourne — comprising the CBD, Docklands and Southbank suburbs — is currently reporting more than 8,000 vacant units, nearly 40 per cent of Melbourne’s total unit vacancies.

For Sydney, it’s the City, East and Inner West areas that are reporting half of Sydney’s total vacancies — up nearly 10,000 vacant apartments.

As the vacancy rates have climbed, there’s been a corresponding downwards pressure on rental prices.

Dr Wilson said that the median weekly asking unit rent in Sydney has dropped from $520 at this time last year to just $450 per week — a fall of more than 13 per cent.

Melbourne unit rents are also down more than 10 per cent than this time in 2020: from $430 to just $385 per week.

But in those inner-city areas where the majority of the vacant properties are located, rents are down even further.

Weekly unit rents in Sydney’s City and East regions have dropped almost 30 per cent (28 per cent) from $625 to $450.

It’s a similar story for Melbourne’s CBD, where unit rents are down by 24.5 per cent to just $400 a week.

Tough times ahead for inner-city unit landlords
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