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This Is The Most Compelling Chart For Australian Property Markets

This Is The Most Compelling Chart For Australian Property Markets
January 25, 2021 Propertyology Head of Research and REIA Hall of Famer, Simon Pressley

When comparing the current property market conditions of one city to the next, Australian real estate currently has the most fascinating paradox that one will ever see. There is this huge contradiction between what many people might assume to be the case and how things really are.

Those who are familiar with Propertyology will know that we love converting the information from hundreds of cells of data into images (charts) that tell a meaningful story for those interested in property markets. Of all the stories we’ve ever shared through charts, this one would be one of the most intriguing.

Now more than any time in our history, we can bundle up each of Australia’s 200 individual towns and cities into one of just two categories. And ‘Category A’ and ‘Category B’ are at the complete opposite end of extremities – either incredibly tight or concerningly soft!

Category ‘A’ is for locations where the rental market is as soft as the butter in one’s pantry. Tenants who live in Category A locations have oodles of properties to choose from while landlords currently have a real risk of rents falling significantly (if they haven’t already) or umpteen weeks of receiving no rent at all.

Propertyology’s research used official data from SQM Research. The locations that currently have soft as butter characteristics (Category A) have a combined population of 10.5 million and an abundance of dwellings advertised for rent (53,000 in total).

The complete opposite is true for Category ‘B’ locations.

With a combined population of 15.1 million, this category has 4.6 million more people than Category A, yet it has less than half as many dwellings available to rent (a piddly 20,000 total dwellings currently advertised).

For the people looking to acquire rental accommodation in Category B locations, the small number of dwellings available and the intense competition to secure some digs is akin to feeding time at the zoo. There are confirmed reports of multiple Category B locations across Australia with families having to live in caravans because they can’t find a suitable rental property.

Out of Australia’s 200 individual cities and towns, the official data shows that only two (2) cities – Sydney and Melbourne – have Category A characteristics. Brisbane is the lone wolf with a balanced rental market, while every other location has intense rental pressure (Category B). It is paradoxical!

Research conducted by Propertyology confirms that the median advertised rent for 3-bedroom houses in Sydney’s Parramatta is $50 per week less than 3-years ago.

The cost to rent a house in Sydney’s Inner-West declined from $745 per week in December 2017 to $650 per week in December 2020 (meaning annual rent is now $4,940 less than 3-years ago), while apartments in Sydney’s CBD have declined from $700 to $565 per week (a whopping $7,020 per year).

In Melbourne, today’s median advertised rent in the CBD ($400 per week) is $5,000 per year lower than 3-years ago. Most suburban rents are much the same as 3-years ago, although the inner-east has dropped $60 per week.

Conversely, large parts of Australia have already seen enormous rent increases. Examples where advertised rents increased by more than 10 percent over the year ending December 2020 include Bundaberg, Noosa, Rockhampton, Hervey Bay, Townsville, Orange, Kingscliff, Kempsey, Bendigo, Wangaratta, Shepparton, Mandurah, Busselton, Geraldton, Victor Harbour and Whyalla.

This next graphic partly explains why.

Over the next 12-months, the owners of a standard house in dozens and dozens of Australian towns are in the rare position of being able to charge between $1,000 and $5,000 more rent compared to what they might have collected last year.

This paradoxical rental market cannot be fobbed off as yet another COVID-creation. The cause of the intense rental pressure is several years of very low volumes of investor activity in these locations. Low investor activity means that very little rental supply being added to a market.

 

Check out this interesting Case Study that compares rental markets in two separate boom cities.

 

The current condition of Australia’s rental market is cause for considerable concern, but for different reasons.

 

Five (5) key facts from our graphic:

  1. The light-blue line (Sydney) shows a sharp acceleration of the volume of vacant rental dwellings from 2016 onwards. Sydney’s last property boom was dominated by unhealthily high investor activity, flooding the market with extra stock such that the total volume of vacant dwellings has increased from 12,605 to 27,251 over the 5-years ending December 2020;
  2. Melbourne’s rental supply (the dark blue line) started to increase in mid-2018. The 11,091 vacant rental properties in Melbourne when COVID arrived in March 2020 was 48 percent more than 2-years previously;
  3. Never in the 230-year history of Australia has there ever been an individual city which has experienced anything remotely close to Melbourne’s increase in vacant dwellings of 11,091 in March 2020 to 28,754 in December 2020;
  4. It is no coincidence that, as Melbourne’s trend line rocketed upward upon the arrival of COVID-19, there was a corresponding major drop in available rental supply in the rest of Australia. This inverted mirror image confirms that a big bunch of tenants that once lived in Melbourne have completely left town; and
  5. The volume of available rental supply in the 200 towns that make up the rest of Australia (the green line in our graphic) is at an all-time record low. The primary cause can be traced back to 2016-17 when a series of decisions by the Australian banking regulator (APRA) acted as an enormous wet blanket that totally sucked the oxygen out of property investors.

While conditions across Australia (excluding Melbourne and Sydney) are very exciting for existing and aspiring property investors, it is very concerning for those wanting to move but cannot find suitable rental accommodation.

Approximately 32 percent of Australia’s existing 10.5 million residential dwellings are rented. Stocks need to be replenished by circa 60,000 extra rental dwellings per year.

98 percent of Australia’s rental supply comes from everyday Aussies who select residential property as part of a broad strategy to acquire financial independence. If they are not supported, the whole country pays a big price in more ways than one.

One can only hope that the powers that be (APRA, RBA and the federal government) learn from previous poor policy.

To encourage Australians to invest for their own financial independence is to free up more taxpayer revenue for essential infrastructure (instead of aged pensions) and to create an environment that ensures that Australia never again ends up with in a situation like right now – the biggest national rental crisis in this country’s history!

Propertyology are national buyer’s agents and Australia’s premier property market analyst. Every capital city and every non-capital city, Propertyology analyse fundamentals in every market, every day. We use this valuable research to help everyday Aussies to invest in strategically-chosen locations (literally) all over Australia. Like to know more? Contact us here.

 

We walk-the-walk. Here’s a recent example of our work for a client.

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