Senin, 10 Agustus 2009

Rent and Sales Report No 88: rents flat

The latest Rent and Sales Report is out and, like last quarter's report, it shows that median rents for new tenancies have more or less flattened.

For the June quarter:

Sydney, inner ring: up 1.1 per cent

Sydney, middle ring: no change

Sydney, outer ring: no change

New South Wales: up 1.5 per cent.

As usual, with the arrival of a new Rent and Sales Report (itself an excellent publication) comes silly reporting. Contrary to the analysts at Yahoo!7 News, I don't think these data 'signal the end of the affordability crisis.'

The flattening of rents is the achievement of the recession, and nothing's affordable if you don't have a job.

I think the recession has done this work on rents by moderating demand, and this has been done through a number of different mechanisms:

1. Not so much bidding up, and more bidding down. I think it's fair to say that applicants for new tenancies are, overall, less confident about their employment, so may be making lower offers for vacant properties, or at least not bidding up asking rents. I expect, too, that agents may be anticipating this and moderating their asking rents.

(I expect similar things are happening in established tenancies, too (remember, the Rent and Sales Report refers to new tenancies, not established tenancies): when landlords are serving rent increase notices, more tenants are negotiating them down (eg 'things are tight, not getting as many shifts, can't afford it'), and landlords are anticipating this.))

2. The 'Packed to the Rafters' solution. Would-be applicants who are even less confident about their employment are not applying for tenancies. Younger persons are staying home with their parents. Renters who are living in share-houses are not moving out on their own. Some who have been renting are moving back in with parents, or into share-houses, and this is freeing up rentals.

(Packed to the Rafters - the 7 Network's heart-warming hit show about the unaffordable housing crisis.)

I suspect there's also a factor at work on the supply side, too, but it's difficult to say anything confidently because of deficiencies in the short-run data about rental housing supply (ie the vacancy rate). At a guess:

3. Unoccupied dwellings coming onto the rental market. As previously observed, Australia has a huge reservoir of unoccupied dwellings. I expect the owners of a few of these dwellings are now thinking if they should do something productive with them – like rent them out and actually derive an income from them.

And finally, we can anticipate that another factor might be put forward on the supply-side: the First Home Owners Boost. But I don't think so – a lot of the Boost will have gone to purchases of existing properties that might otherwise have been on the rental market, so even as a new first home owner frees up a rental property (assuming they have not been practicing the 'Packed to the Rafters' solution), they also often take up another. To the extent that the Boost has gone to new dwellings, it could free up more rental properties, but plenty of those new dwellings would not yet be ready to be occupied and, as I say, I expect it is the smaller component of the Boost program.