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The RBA sounds alarm bells

There has been a lot of talk in the media about what effect rising interest rates will potentially have on the Australian housing market and concerns surrounding affordability for those trying to take their first step onto the property ladder.

Then of course there’s our record housing shortage, which is being compounded by a construction slowdown and continuing strong population growth.

With all of these elements at play, it’s not surprising that the Reserve Bank of Australia has sounded the alarm bells with regard to rental prices, warning that they are set to rise over the next year. 
Although rents have slowed over the past few months after some phenomenal growth, it’s expected that things will once again start to pick up in the rental market as vacancy rates start to fall and affordability sees more potential first home buyers swimming in an increasingly large tenant pool.

General manager of Australian Property Monitors Anthony Ishac said, “The outlook for rents is for them to rise. But this is also going to create quite an issue for affordability, with people going into renting rather than buying a home. This is going to put quite a strain on demand for rental properties.”

During its October board meeting the RBA noted that, “there were some signs that the rental market was tightening again,” and added, “The tightness in the rental market was likely to persist given the ongoing strong population growth and the decline in housing approvals this year, and could be expected to feed into increases in rents.
Approvals for construction of apartments remained at low levels in most states, with Victoria a clear exception.”

Of course with increasing rental demand and a notable decline in vacancy rates, many landlords will take the opportunity to increase rents in order to absorb the coming interest rate rises that many experts are forecasting. And why not? With the cost of investment finance rising, it’s only logical for property investors to want to bridge the widening gap between higher loan repayments and rental income.

In particular demand will be units and apartments, as tenants seek more affordable accommodation in popular inner city areas.

Warnings of rising rents might seem premature given that rental prices have remained flat this year, with data from APM showing a national decline of 0.3% for houses and 0.5% for units in the three months to September.

However Ishac says pre-GFC, “It wasn’t uncommon for rents to increase every six months, and because there is so much demand it puts the power in the hand of the landlord.”

“It’s going to make it much more difficult for people to find a place to live, and they are going to be pushed out into the outer suburbs. They simply won’t have the choice in rental properties because they’ll be pushed out,” he says.



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About

Michael is a director of Metropole Property Strategists who help their clients grow, protect and pass on their wealth through independent, unbiased property advice and advocacy. He's once again been voted Australia's leading property investment adviser and his opinions are regularly featured in the media. Visit Metropole.com.au


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