What a year for property headlines!
Rising rents are now the headline, replacing misguided predictions of a property price collapse. There is a property shortage, with not enough houses to accommodate everyone, and the problem is getting worse.
Dozens of applicants are often chasing one property, some offering higher rent or to pay three months’ rent in advance to get a home.
Why is there such a problem?
Returning international students have re-vitalised demand in the inner-cities, and immigration policies have resumed. However, the current budget papers predict that by 2024 there will still be 215,000 fewer migrants in Australia than were expected in the 2019 budget. So, we have fewer migrants than expected, that should be causing a housing surplus!
Part of the reason is the existing populace are demanding more space to themselves. RBA figures show a decrease in average persons living in each property. That means we need more homes just to house the existing population, without accounting for any population growth.
So, what to do?
However you look at it, we need to build more houses. The Labor government pledge to build 1 million homes in 5 years would certainly help – if they fulfill the promise – but that alone will not fix the problem, we need more than that.
Traditionally investors are a primary source of building new properties. There is a ‘normal’ demand for about 30% of housing in Australia to be available for rental, that is a balanced market. Investors are a primary funder of new properties, subsequently sold to owner occupiers some years later. So perhaps investors will be the solution?
Increasing taxes on private investors from State and Federal governments adds an interesting dynamic. Unfortunately, some investors are exiting the market due to being targeted. This will decrease new builds and make the shortage worse.
What this means depends on your perspective:
1. For investors, run your numbers carefully. I am seeing some exit the market due to construction industry issues, government tax changes, increased interest rates, rent control threats/discussions. My advice: Don’t jump ship too early! There is now a shortage of investors in the market. In the long run we will always need 30% of properties available for rental. As increased costs and taxes worsen the housing shortage it will result in higher rents and housing prices in the longer term. Owning investment property comes with risks and challenges, however renters need you!
2. For renters, the problems of today are not a short-term phenomenon. The benefits of owning your own home have increased. Higher rents are likely here to stay. Increased government regulation of landlords will cause more problems for renters than it solves (we are already seeing that). If you can buy your own home, you should do so: The short-term sacrifices to move to being a homeowner will be well worth it in the long run.
It is interesting to note commentary from outgoing RBA Governor Philip Lowe on the housing shortage:
"The way that this ends up fixing itself, unfortunately, is through higher housing prices and higher rents," says Lowe. "Because as rents go up people decide not to move out of home, or you don't have that home office, you [get] a flatmate."
"The increase in supply can't happen immediately, but higher prices do lead people to economise on housing. That's the price mechanism at work. We need more people on average to live in each dwelling, and prices do that," he said.
That’s OK for those who want to stay living with Mum and Dad, Philip. But what about the rest of us?
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