‘A landlord’s market’: Little relief for renters amid tight vacancy rate

By Kate Burke

December 5, 2022

Tenants across Australia are struggling to find a place to call home, let alone an affordable property, as rental vacancy rates languish at record lows, new figures show.

The national rental vacancy rate held at a record low of 0.8 per cent last month, down from 1.5 per cent the previous November, Domain data shows, pushing up competition for available properties.

Vacancy rates held steady or barely improved in most cities and across regional Australia over the month, as the number of vacant properties rose slightly — up 3.1 per cent from October — but experts say tougher conditions could lie ahead for tenants.

Domain chief of research and economics Dr Nicola Powell said this was a seasonal rise as the rental market moved into the busy change-over period, and would do little to improve the situation for renters. While there were about 20,320 vacant rentals last month, that was still down 46.6 per cent compared to the same period a year earlier.

“We still have a landlord’s market across Australia and in every capital city,” she said.

“We’re nowhere near this providing alleviated conditions for tenants. While we see that seasonal lift [in rentals], we also see a higher level of people looking for a rental … it is a drop in the ocean compared to what we need.”

Melbourne was the only city where vacancies declined, slipping back to a record low of 1.1 per cent, and matching Sydney where the vacancy rate inched up from 1 per cent in October. A balanced market is considered to be about 3 per cent.

Perth and Adelaide had the lowest vacancy rate at 0.3 per cent, followed by Hobart at 0.4 per cent. Canberra had the highest rate at 1.2 per cent.

Powell said vacancies were expected to rise over the next couple of months, but could fall in the new year, particularly in Melbourne, as migration picks up and more international students arrive.

She said Melbourne’s inner city — which recorded one of the city’s highest rates at 1.8 per cent — had a dramatic recovery since being hard hit by lockdowns.

Powell said governments needed to make it more affordable to buy a home to ease rental demand, while housing supply should be boosted in middle ring suburbs, more build-to-rent development encouraged, and longer-term leases offered.

Most properties in inner-city Melbourne were leasing within two weeks, said Daniella Ferraro from Harcourts Melbourne City.

Rents were climbing from lockdown lows, and high levels of enquiry had returned, but applications were still on the lower side. However, Ferraro expected that would change as more international students returned.

“[The vacancy rate] will drop further … particularly in certain pockets of the city; the high-rise building areas and those close to universities,” she said. “Those apartments will lease really quickly, and I would say at higher than average rental prices.”

In Sydney, the lowest vacancy rates were in middle and outer areas such as Penrith, Camden, Campbelltown, Bankstown and Sutherland, which all recorded a rate of 0.5 per cent.

Greg Taylor, director of Stanton & Taylor Real Estate, said rental demand in Penrith — more than 50 kilometres west of the CBD — jumped at the start of the pandemic, and had continued since, as more people moved to the area for better affordability.

At the same time, rental supply had reduced, as some landlords cashed out of the market, while other potential investors sat on the sidelines as property prices soared.

Most rentals received multiple applications and were leased within a week, Taylor said, and tenants were increasingly offering to pay more to secure a property.

“People are offering $20 to $50 a week extra, sometimes more, and we’ve had some cases where tenants are offering six months rent in advance,” he said.

Joel Dignam, executive director of tenants advocacy organisation Better Renting, said lower income earners were hit the hardest by the rental shortage.

“There is this funnelling effect, where the people who have the least chance of competing for better properties … are pushed further out, and further down in terms of the quality of properties they’re forced to accept,” he said.

Tenants had been reluctantly handing over bank statements and other private information to avoid missing out on properties, Dignam said. Others felt they had little choice but to engage in rent bidding, which only pushed market rents higher.

“People can’t walk away, they need somewhere to live,” he said.

If governments were serious about improving housing affordability, they had to play a role in regulating rents as part of a suite of tools, Dignam said.

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You could be in a position to buy a home right now and not realise

By Emily Hutchinson, Rent Specialist and Property Journalis

Paying off a mortgage each month could now be cheaper than renting for many Australians – and experts say tenants could have enough savings in the bank for a deposit without realising.

Paul Williams is a a mortgage broker in Melbourne for Mortgage Choice and said the current market allows some renters to now make the leap into buying.

“Rents are generally rising, as are mortgage repayments, but at the same time property prices have come down a tad, so what we are finding is that it’s not a lot more to pay off a mortgage than it is to rent,” Mr Williams said.

Rapid changes in the market over the course of the year mean this suddenly more favourable standing will catch some Aussies by surprise.

“Many tenants don’t realise this until they have the conversation about what’s possible,” he said.

Mr Williams added that the variety of government incentives available can help tenants make the leap from renting to owning, including a suite of new measures they may not have previously been aware of.

“A lot of young people we speak to don’t actually understand that there are several benefits available that you can add on to the level of savings that they’ve already achieved,” he said.

Data shows that overall lending is down, with some would-be buyers clearly uncertain about the market.

Australian Bureau of Statistics figures for September recorded a 8.2% fall in lending for homes.

Saving for a deposit

There’s no denying that the most difficult aspect of purchasing a home is saving up a deposit, which is generally 20% of a property’s purchase price.

Once that deposit is saved, paying off a mortgage each month is often a similar burden to paying rent.

“As home prices have increased, the chief hurdle for most first-home buyers has been saving a deposit,” explained Paul Ryan, senior economist at PropTrack.

However, under new government schemes, first-home buyers don’t necessarily need a 20% deposit to purchase a home.

The First Home Loan Deposit Scheme, which was introduced in 2020, allows first-home buyers to buy with as little of 5% of a home’s value without needing to take out lender’s mortgage insurance.

The Commonwealth Government guarantees the difference between what the eligible buyer has saved and the 20% deposit threshold lenders usually require before they’ll provide a loan without LMI.

“I think it’s fair to say that that’s been quite successful,” Mr Ryan said.

“That has been, I think, fully subscribed every year that it’s run. And we saw a big increase in the number of buyers throughout COVID, partially attributable to that policy.”

The other policy that means a first home buyer doesn’t need as much in savings as previously expected is Labor’s Shared Equity Scheme.

The program will help 10,000 Australians annually to buy a home with a deposit as small as 2% and see the government take up to a 40% stake.

“So, people that have gotten themselves to a point where they’ve got strong incomes to meet mortgage repayments may well be able to purchase sooner than they expected,” Mr Ryan said.

Why the government is pushing renters to buy

Former prime minister Scott Morrison notoriously said in an interview that those struggling to afford rising rental prices should just buy a home.

It was a controversial statement – but one with some substance.

The fewer people renting in the middle of the market, the lower the demand for those dwellings and therefore the less pressure on price movements. In theory, that allows those at the lower end of the market to find a home, and find one that’s affordable.

But governments also focus on support measures to buy a home because of how most people value the so-called ‘Great Australian Dream’.

“I think it’s partly cultural – I think Australians’ views on homeownership is very strong, so I think there’s a strong desire there for a lot of people to purchase a home before starting a family or those early stages of a career,” Mr Ryan said.

Renting laws are also not as favourable to tenants in Australia, which motivates many to switch into the buying market if they can.

“There’s an understanding that renting conditions can be poor in this country… and so it’s been seen as undesirable to rent long-term, as compared to say, European countries where people are perfectly happy to rent their entire lives,” Mr Ryan added.

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