Renters and low-income households are better off today than they were 2 years ago in 2021, even amid high inflation and our worsening rental crisis.
The new Reserve Bank governor Michelle Bullock made the claim in her first speech since taking over the job, adding that strong employment and income growth help to shield the majority of Australians from the cost-of-living crunch.
That is despite median rent increases across the nation over the past 12 months, with hikes of up to 30% in some areas.
But Bullock maintained that even with this in mind, income growth means renters have more cash available today compared to people with mortgages.
“Households with a mortgage have experienced a significant decline in spare cash flows, unlike other households [for whom] higher interest costs have reduced their cash flow by more than the rise in inflation has,” she said.
“By contrast, the spare cash flow of renters has, on average, risen a little as high inflation and rising rents have been more than offset by growth in income.”
Bullock said the average household with a mortgage has experienced a significant decline in cash flow in the 18 months to June 2023 due to inflation and interest rate hikes.
Up to 50% of indebted borrowers - those with home loans 4 times larger than their income - weren’t earning enough to pay their mortgage and other essential expenses.
She added that while rent prices have risen at the fastest pace in a decade, fueled further by a severe supply shortage, she claimed that incomes in the lower-income bracket have seen their cash flow improve over the same 18-month period due to a raise in the minimum wage.
The unemployment rate fell in September to 3.6%, mainly because fewer Australians looked for work, although this is expected to increase to around 4.5% by late 2024.
Meanwhile, from July 1, the Fair Work Commission raised Australia's minimum wage to $882.80 per week or $23.23 per hour.
RBA ‘won’t hesitate’ to hike the cash rate further
In her speech, Bullock said she “will not hesitate to raise the cash rate further if there is a material upward revision to the outlook for inflation”.
“At the same time, the board is mindful that growth in demand and the rate of inflation have been moderating, and that there are long lags in the transmission of monetary policy.”
The RBA board is due to meet to review the cash rate on November 7.
All of Australia’s big 4 banks are expecting a rate hike to 4.35% at the meeting on November 7 following Bullock’s speech and ABS statistics on the 1.2% rise in consumer prices for the September quarter.
This is driven by soaring petrol prices, surging power bills and the tight rental market.
Vacancy rates fall again and rents rise
The national residential property rental vacancy rate has continued to fall, reaching 1.1% in September.
The total number of rental vacancies Australia-wide decreased by 2,765 dwellings to 32,660 vacancies, further highlighting the severity of the housing rental crisis in Australia.
Most of the capital cities recorded a decrease in vacancies, with Sydney, Melbourne and Canberra reporting decreases in rental vacancy rates during the month, standing at 1.3%, 1.2% and 1.8% respectively.
Meanwhile, in the 30 days leading up to October 12, 2023, asking rents in the capital city increased by 1.3%, contributing to a notable 16.2% rise over the past year.
Specifically, house rents in the capital cities rose by 1.8%, with a 12-month increase of 15.6%, while unit rents showed a more rapid 0.5% increase over the last 30 days and a 16.1% rise over the past 12 months.
The national median weekly asking rent for the combined dwelling is $594 a week.
A final note for investors…
Talk of rates rising further, high inflation and renters being better off than homeowners might appear to be grim news, but I still see a window of opportunity for property investors with a long-term focus right now.
You see…we are at the beginning of a new property cycle, something that doesn’t happen very often.
Not that I suggest you try and time the market - this is just too difficult, and in truth, you’ve missed the bottom which occurred in early 2023.
But if the market hands you an opportunity like this, why not take advantage of it?
Moving forward, demand is going to outstrip supply for some time to come as we experience record levels of immigration at a time when we’re not building anywhere as many properties as we require.
While it might feel counterintuitive to buy at a time when there are so many mixed messages in the media, you can benefit from less competition, low consumer sentiment, minimal downside risk and minimal risk of oversupply.
And you can be part of the solution to our rental crisis at the same time.
