The lines of hopeful tenants queuing outside rental properties on a weekend are only expected to get longer as pressures on Australia’s rental market intensify.
Fresh data released this week pointed to a re-acceleration in rents as well as a stabilisation in home prices, a situation that St George economists have labelled a “double-whammy” for the one-third of Australian households that rent.
Higher demand and low vacancy rates prompted advertised rents to lift 2.5 per cent in the March quarter, according to CoreLogic data, up from two per cent in the December quarter.
The property data firm also released new homes data for March this week showed prices lifting 0.6 per cent, the first uptick after 11 months of declines driven by the Reserve Bank of Australia’s sharp increase in interest rates.
If property prices are indeed already bottoming out, St George economists Besa Deda and Pat Bustamante said renters will find it harder to ditch the rental market and buy at an affordable price.
It was unusual for dwelling prices to be lifting while the RBA was still eyeing more rate hikes, they said.
Migration’s pressure
But the combination of strong population growth – largely driven by a post-pandemic migration boost – and few homes available to buy was countering the depressing effect of higher rates.
Domain’s Nicola Powell said the decision to keep the cash rate on hold in April after 10 consecutive hikes, plus signs of stabilisation in the property market, could entice more investors back into the market and boost rental stock.
Investors were typically more interested in capital growth than higher rental yields, which is why higher rents hadn’t done much to attract more investors into the market, she told AAP.
Independent economist Saul Eslake also echoed several of his peers, who have warned it’s still too early to call the end of the property market downturn, especially since monetary policy movements hit with a lag.
Mr Eslake said a combination of strong post-pandemic population growth and prospective sellers hanging back in the knowledge they won’t get the price they want, could continue to work against higher borrowing costs.
Construction slowdown
The slowdown in new home construction will only exacerbate the problem.
As pointed out this week by central bank governor Philip Lowe, new home building always takes a long time to catch up to a spike in demand and at the moment, there are a host of factors weighing on new work.
Community opposition to new development, the lack of suitable land for projects, long lead times and sky-high construction costs are all holding up new housing projects, the National Housing Finance and Investment Corporation’s State of the Nation housing report outlined this week.
Combined with the expected uptick in population growth, with net migration levels tipped to reach 350,000 this financial year based on recent Treasury estimates, the corporation is forecasting a projected shortage of 106,000 dwellings by 2027.
Mr Eslake said cutting migration was not the solution to improving housing conditions and said all levels of government had a role to play in helping maintain a better balance between supply and demand.
National problem, local factors
While the federal government does control some of the funding for public and community housing, the levers for boosting supply are largely controlled by state and local governments.
“And they’re very difficult to change because, although it’s easy for people to say, ‘just let more housing be built at greater density’, that runs into problems because the people who might benefit from denser housing are not in the area of the councillor that’s been elected,” Mr Eslake said.
He said federal governments were largely responsible for levers that could control demand for housing, such as tax settings.
“If you are in a hole, the first thing you’ve got to do is to stop digging,” he said.
“So we need some combination of policies that avoid unnecessarily inflating demand and policies that boost supply and the responsibilities for those that are spread across all three levels of government.”
Mr Eslake welcomed the government’s acknowledgement it had a role to play in easing the housing affordability crisis.
The Albanese government is pushing a package of housing reforms through parliament, which includes a housing future fund that will become a source of funding for new social and affordable housing.
The government could be forced to do more, however, with crossbenchers needed to pass the legislation negotiating for more ambition to better match the scale of Australia’s housing woes.
-AAP
