Senin, 09 Februari 2009

Agents who ask too much: making sense of rents

In a recent post about rent increases, I noted that there are different measures of rents out there. These include:
  • 'asking rents' - the rents sought by agents in their advertisements for properties to let. These are reported by Australian Property Monitors (APM) and get a bit of coverage in the press;
  • 'new agreement rents' - the rents paid by tenants at the start of a new tenancy. These are reported by Housing NSW in its Rent and Sales Reports, using data from bonds lodged with the Rental Bond Board (RBB); and
  • 'established rents' - the rents paid by tenants in established tenancies. These are reported in the Census, and we can work out how much they've increased between Censuses by using the Rents index in the Consumer Price Index reports.
I said then that I'd look further into the differences between them: here's what I've come up with, looking at reports of these measures over 18 months.

(Sources: APM 'Rental Report', various editions, March 2007-September 2008; Housing NSW RBB data special request, March 2007-September 2008; ABS 2006 Census and CPI reports, March 2007-September 2008. Click on image for a better view)

In short, 'asking rents' are higher than 'new agreement rents', which are higher than 'established rents'.

For our present purposes, the most important thing is that 'asking rents' are higher than 'new agreement rents' – in other words, landlords overall actually get significantly less for their properties than what their agents advertise. In fact, on average their houses get about $50 less, and their flats get about $45 less.

Perhaps landlords and agents are just hopelessly optimistic. Or perhaps many of them are hopelessly greedy.

The lesson for tenants is not to be afraid of trying to negotiate the rent down. You might feel like that's difficult to do in a tight rental market, but many agents and landlords are shooting for rents that are far in excess of what the market can bear.

Another lesson is to query whether 'asking rents' are a valid measure of the level of the rental market.

Some notes on the chart.
  • First, a note of thanks to the housing analysts at Housing NSW who, by special request, provided the TU with the RBB data relating to 'new agreement rents.' These data are median weekly rents for houses and for flats in the Sydney Statistical Division, which is a slightly different breakdown to that usually present in the Rent and Sales Report. The data provided allows a comparison with APM's data.
  • The 'asking rents' data comes from APM's Rental Reports, which are available for download from APM's website. There's a couple of issues with these data.
  • First, there's a few gaps in the series of reports available from the website, but I've been able to fill in these gaps because each report refers to figures from previous reports.
  • The second issue is more of a problem. As Dan at Bubblepedia has observed, sometimes APM retrospectively revises downwards previously reported figures. In particular, the report for September 07 gives asking rents of $400/$380 (ie houses/flats); in the report for September 08, the figures for September 07 are given as $360/$360. The September 07 report also gives figures for June 07 of $385/$380; these are reduced in the June 08 report to $365/$360. For the purpose of the graph, where the figures are inconsistent I have used the most recent (ie lower) figures.
  • About 'established rents' - this represents the median Sydney rent recorded at the August 2006 Census ($250 per week), adjusted according to the Sydney Rents Index in the CPI. Unfortunately, I was not able to get this broken down to houses and flats.
The TU tips its lid to Dan at Bubblepedia, who first queried whether 'asking rents' were overshooting the mark, and who spotted the revisions in APM's figures.

[PS (Sunday 15 February) - have a look at the Herald's report on these findings, including comments by APM and the Real Estate Institute of NSW.]