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Amid the painful effects of rising costs for renters and investors alike, what are the changing market conditions and influences that property managers need to be aware of?
In a recent episode of Secrets of the Top 100 Agents, chief of research and economics at Domain, Dr Nicola Powell, delved into the underlying causes of the circumstances at play in Australia’s property market.
Powell remarked that while the first three months of any calendar year are expected to be busy due to high renter demand, this period within 2024 is anticipated to be “Australia’s most competitive changeover period ever seen”.
This forecast has been proven true. Powell stated that rental growth has accelerated as a result of the extraordinarily high rates witnessed in 2022 and 2023 – this momentum leading to early 2024’s house rents experiencing the steepest quarterly gain in 17 years. Not only that, unit rents increased for the 11th consecutive quarter in a row.
“I think the strain has been there for a long period of time. When you think about the rise, it’s been such a long period, households can only continue to meet that increase for a certain period of time,” stated Powell.
“Income dictates how much someone can pay for rent. That affordability ceiling is very much evident within the rental market.”
In deconstructing the causes behind these rising costs, Powell went on to detail the the nuances playing out across the country’s rental markets.
“Canberra and Hobart are performing differently. They’re bucking the trend, that national trend of rising rents across our capital cities.”
Powell attributed this deviation within Canberra and Hobart to the areas “losing more people to other states and territories than they’re receiving”.
The economist explained that this has had an “immediate impact” in alleviating both cities’ rental markets and is indicative of the significant influence that population demographic shifts are playing in fuelling the current rental crisis.
And Hobart and Canberra aren’t the only places in which internal migration patterns are having an impact, with Powell stating it is also particularly evident across Sydney and regional NSW.
“We really saw the pressure for rental demand occur in regional Australia as people are able to work remotely, but I think those demographic shifts from the pandemic are reversing.
“People are willing to drive that little bit further, but I think that it definitely has changed. You can’t necessarily reside in Byron as easily now and work in Sydney if you’ve got to be there two or three days a week.”
With more workers now basing themselves in the cities, additional pressure is coming from high levels of overseas migration, as these individuals often look to settle within capital cities on arrival to Australia – Powell noted increased demand is also pushing up demand in inner city enclaves.
Government efforts to curb the housing crisis, including the target of constructing 1.2 million homes by 2029, were cited by Powell as being sound on a surface layer but ultimately marred by underlying bureaucratic obstacles.
“It’s really nice to see supply being taken as a really serious approach, but 1.2 million homes means that we do need 240,000 houses starting each year for the next five years,” she said.
“It means providing shovel-ready land at affordable prices to allow developers to then come in and actually create this land.”
It’s why the economist advocates for resourceful and unconventional measures to be implemented in striving towards the goal.
Stressing “we have to remember we live in some of the least dense cities in the world”, Powell noted the rezoning of areas across Sydney around major infrastructure areas and called it “a step up in the right direction”.
But she also pointed out that such changes don’t necessarily require the building of a whole lot of high-rise buildings. Instead, ”it’s about the missing middle of affordability found in townhouses, terraced homes and duplexes”.
Ultimately, Powell was adamant about the need to remember that “shelter is a need”, with any proposed accommodation solutions needing to provide “adequate stepping stones to allow people along their property journey”.
Listen to the full conversation with Nicola Powell here.
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