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By Leanne Jopson

A perfect storm: rental challenges ahead

Is the Australian rental market heading to more challenging times?

According to REA's senior economist, Eleanor Creagh, "a perfect storm is brewing that will likely see the already stretched rental market placed under further strain, causing prices to climb higher."

In fact, right now, the labour market is under intense pressure, with the unemployment rate at a 48-year low and skilled worker shortages weighing heavily.

Rental Markets

As a result, the Federal Government increased the migration cap to 195,000 people this year.

At the same time, international student visa applications have hit a record high, pointing to a large uptick in arrivals.

This is likely to put further upward pressure on rental demand, colliding with a historically low supply of housing stock.

Rental prices are already rising across Australia – and particularly so in inner-city rental markets.

What are the solutions?

Well, social housing would help protect those in housing stress.

Labor has a plan to increase social housing, but there is still a huge shortfall.

Ms Creagh explained:

"With more than 100,000 households on waitlists, the planned additional 4000 homes a year falls well short of what is even currently required.

Efforts to increase the supply of social and affordable housing, increasing funding and investment into social and affordable housing, would serve to reduce some of the pressure in rental markets, as well as provide stable and secure housing options for those who need it.

As it stands, rental price pressures have outpaced increases in the Commonwealth Rent Assistance payment.

Rental reform could include increasing this support to alleviate the burden of price pressures on lower-income tenants."

Where Rental Prices Have Risen The Most In The Last 12 Months Houses

Ms Creagh further explained:

"Encouraging more people into homeownership and increasing accessibility for first-home buyers could also help reduce rental demand, alleviating the burden on rental markets.

Building more of the right homes in the places where people want to live and reforming state and local government planning systems would increase the supply of homes and improve affordability.

A critical lack of rental supply makes these issues significant for those who are not yet homeowners.

Other reforms centred around removing inefficient tax and transfer barriers could help improve affordability in the long run.

While aiding more build-to-rent projects won’t help with the current pressures and low supply of rentals, advancing the sector could help increase rental supply in the long term.

And finally, investors.

In recent months, falling property prices and quickly rising interest rates have deterred new investors from entering the market.

Macroprudential measures aimed at curbing investor demand, state-based tax and stamp duty regulations, alongside changes to residential tenancy laws are also deterring new investors, having prompted many existing investors to sell.

Undoing some of the deterrents to private investment in housing would also add to the available pool of long-term rentals."

Where Rental Prices Have Risen The Most In The Last 12 Months Units

Are we building enough stock to cope?

Building costs have surged with labour and materials shortages and interest rates quickly rising, slowing activity in the sector.

The number of new homes approved for construction fell 17.2% in seasonally adjusted terms in July, driven by a large fall in apartment approvals, according to data released by the Australia Bureau of Statistics.

House Building Cost2

Ms Creagh said:

"Western Australia had the largest drop in the number of dwelling approvals (-36.9%), followed by Victoria (-17.4%), New South Wales (-16.2 per cent), Tasmania (-14.5%), and Queensland (-13.7%). South Australia bucked the trend with approvals rising 19.2% in seasonally adjusted terms.

In fact, a 43.5% decline in approvals for private sector dwellings excluding houses nationally brings apartment approvals to the lowest level since 2012.

Large apartment developments have particularly dropped off, spelling more bad news for renters already facing a historic shortage of available rentals.

At the same time, apartment completions have also dropped off.

Inner Sydney and Melbourne are likely to bear the brunt of these forces, given this is typically where recent arrivals, who are predominantly renters, will choose to live and where land shortages and inflexible planning restrictions render the largest constraints.

But even so, rental pressures are strong right across the country with few regions unscathed.

Demand to rent is up and a return of migration and rebound in the international student market will continue to add to rental pressures, further shrinking the supply of available rentals, which is already at record low levels.

With no meaningful increase in supply, rental pressures are likely to remain for some time."

About Leanne Jopson Leanne is National Director of Property Management at Metropole and a Property Professional in every sense of the word. With 20 years' experience in real estate, Leanne brings a wealth of knowledge and experience to maximise returns and minimise stress for their clients.
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