Did I completely misunderstand what vacancy rates meant all along!??

[Taku]

Hi guys,

I'm hoping you can shed some light around the area and I'm wondering if it's just me that potentially had this mistaken all along.

Regarding vacancy rates:
If an area has a 2% vacancy rate, does this mean:
a) at any given time of the year, 2 out of every 100 properties in the respective suburb is vacant?
b) on average, a property in that suburb remains vacant for 2% of the year i.e. 365 days x 2% = property is vacant for 7.3 days (on average)

I've thought this whole time that that it was (a), but I was reading a book yesterday which lead me to believe the latter.


Cheers,

Taku

 

[DaveM]

2% of rental properties in the suburb is available to rent.

Eg suburb of 20,000 homes of which 20% are rental stock, 2% (80) are available

 

[Taku]

2% of rental properties in the suburb is available to rent.

Eg suburb of 20,000 homes of which 20% are rental stock, 2% (80) are available

Thanks DaveM.

Technically neither of my answers were correct

Still got a lot to learn!


Cheers,

Taku

 

[mrdobalina]

2% of rental properties in the suburb is available to rent.

Eg suburb of 20,000 homes of which 20% are rental stock, 2% (80) are available

Uummm.... That doesn't sound right.

 

[BayView]

2% vacancy rate refers to those which are vacant out of the possible pool of rentals.

 

[Perp]

If an area has a 2% vacancy rate, does this mean:
a) at any given time of the year, 2 out of every 100 properties in the respective suburb is vacant?
b) on average, a property in that suburb remains vacant for 2% of the year i.e. 365 days x 2% = property is vacant for 7.3 days (on average)

The figures are averages, so these two will be the same number.

 

[Sim]

Uummm.... That doesn't sound right.

What doesn't sound right about it?

The rental vacancy rate is the proportion of the rental inventory that is vacant for rent.

Apparently, SQM Research calculates vacancy rates using "listings that have been advertised for three weeks or more (and are still currently advertised as at the time of collation)".

I've read that a market at 3% vacancy is considered in equilibrium, while below 2% indicates high rental demand and above 4% shows a surplus of stock (low rental demand).

 

[Sim]

The figures are averages, so these two will be the same number.

I don't think they will - it depends on who is calculating the figure.

For example, as per my previous post, I read that SQM Research only considers a rental property "vacant" if it has been unoccupied and available for rent for at least 3 weeks.

Average length of time a property is vacant is very different to the average number of properties which are vacant.

 

[Perp]

I don't think they will - it depends on who is calculating the figure.

For example, as per my previous post, I read that SQM Research only considers a rental property "vacant" if it has been unoccupied and available for rent for at least 3 weeks.

Ah, yes, if they don't use the commonsense definition of "vacancy", then no, they won't be the same! Thanks.

 

[Taku]

For example, as per my previous post, I read that SQM Research only considers a rental property "vacant" if it has been unoccupied and available for rent for at least 3 weeks.

Average length of time a property is vacant is very different to the average number of properties which are vacant.

Thanks for the feed back all.

I wasn't aware that different resources have different methods of calculating vacancy rates.
Now that explains why there are varying figures out there when it comes to vacancy rates.

I use SQM research also to check for vacancy rates.

Can anyone suggest which resource is generally deemed the most credible for vacancy rates?

And maybe just as more importantly, which source not to rely on??


Cheers,

Taku

 

[Peter_Tersteeg]

If an area has a 2% vacancy rate, does this mean:
a) at any given time of the year, 2 out of every 100 properties in the respective suburb is vacant?
b) on average, a property in that suburb remains vacant for 2% of the year i.e. 365 days x 2% = property is vacant for 7.3 days (on average)

Over the long term, options A and B would mean the same thing. In my mind, I've always thought of it in terms of option A.

2% of rental properties in the suburb is available to rent.

Eg suburb of 20,000 homes of which 20% are rental stock, 2% (80) are available

Interesting perspective. Never considered it in that manner.


Practically speaking, I've found that when area wide vacancy rate is is 2% or less, it means that if my property does become vacant, I'll have a new tenant within a week of putting it on the market. You can't ask for much better than that.

 

[Ed Barton]

For example, as per my previous post, I read that SQM Research only considers a rental property "vacant" if it has been unoccupied and available for rent for at least 3 weeks.

I don't think SQM considers whether a property is occupied or unoccupied when determining vacancy rates. That would be too time consuming and costly.

They simply assume that if a property has been advertised for at least three weeks then it is vacant. Not many properties would be advertised more than three weeks before they become vacant. Perhaps the 3 weeks methodology is underestimating the vacancy rate if most properties are first advertised less than 3 weeks before they become vacant?

 

[Sim]

They simply assume that if a property has been advertised for at least three weeks then it is vacant. Not many properties would be advertised more than three weeks before they become vacant. Perhaps the 3 weeks methodology is underestimating the vacancy rate if most properties are first advertised less than 3 weeks before they become vacant?

I would think the 3 week thing is to deliberately remove those properties which are turned over quickly with new tenants after the old ones vacate.

We're not trying to measure tenant turnover - we're trying to measure how many properties are actually vacant. Being vacant for a few days between tenants is rather meaningless in the grand scheme of things - we only want to look at those which have not had new tenants quickly installed.

There is a complication if they only consider advertisements rather than actual vacancy, as some properties may well be advertised for a month at the end of a tenancy before one tenant moves out and another one moves in shortly afterwards with effectively no vacancy.

At the end of the day though, so long as you only use one source of data for comparison, you should at least be able to compare areas reasonably well - no matter what the methodology is. Consistency in the application of the methodology is far more important than the actual numbers.

You should be careful when comparing vacancy rates published by someone like SQM Research versus some other data provider - since they likely use different methodologies.

I'm curious as to whether the ABS collects this type of data and what methodology they use?

 

[GoAnna!]

You need to also keep in mind that segments of the rental market will have hugely different vacancy rates than others so the overall number is pretty meaningless. I think a chat to one or two competent property managers in the area will soon give you a much clear idea of what is and isn't in demand.

In my area, for instance, 4br 2bath are as rare as hens teeth but new apartments are a dime a dozen.

 

[Sim]

You need to also keep in mind that segments of the rental market will have hugely different vacancy rates than others so the overall number is pretty meaningless. I think a chat to one or two competent property managers in the area will soon give you a much clear idea of what is and isn't in demand.

In my area, for instance, 4br 2bath are as rare as hens teeth but new apartments are a dime a dozen.

This is a very good point - Artarmon is a great example of this too - there are multiple very distinct markets at play here.

There are plenty of units and townhouses near the railway line which have fairly high turnover but vacancy rates are generally not too bad. Units along the highway (and further away from the railway station) typically have much higher vacancy rates. 2BR vs 3BR is different again.

The average number of houses available for rent at any point is time is less than 1 (ie there are frequently no houses available for rent at all) - it is mostly owner occupied in this area and average length of tenancy for houses is generally pretty long - vacant houses typically don't last long before new tenants are found.

You really do need to be careful that you are comparing like-for-like when looking at published statistics.

 

[Ed Barton]

I would think the 3 week thing is to deliberately remove those properties which are turned over quickly with new tenants after the old ones vacate.

We're not trying to measure tenant turnover - we're trying to measure how many properties are actually vacant. Being vacant for a few days between tenants is rather meaningless in the grand scheme of things - we only want to look at those which have not had new tenants quickly installed.

True. I would extend a few days to a week. In my renting days if I was moving I would end the old tenancy on a Monday and commence the new one the previous Friday allowing me the weekend to move and clean. I'd imagine most tenants do something like this. While the old house was technically vacant from Monday to Friday in most cases it was not available for rent. By the time I hand in the keys on Monday, the PM does the final inspection on Tuesday and then allows a few days to go back and reclean etc the property is not available to rent till Friday.

I take back my comment that 3 weeks under estimates vacancies.

There is a complication if they only consider advertisements rather than actual vacancy, as some properties may well be advertised for a month at the end of a tenancy before one tenant moves out and another one moves in shortly afterwards with effectively no vacancy.

I'd imagine all the data providers only consider ads. It would be too costly to look into actual unoccupied properties. A statistically significant sample survey wouldn't be able to drill down to suburbs.

At the end of the day though, so long as you only use one source of data for comparison, you should at least be able to compare areas reasonably well - no matter what the methodology is. Consistency in the application of the methodology is far more important than the actual numbers.

Agreed. I want to know if Ed'ville has a greater, or lesser vacancy rate than Burton'ville. I also want to know how vacancy rates have changed over time in those burbs.

I'm curious as to whether the ABS collects this type of data and what methodology they use?

I'll give it a go and report back. The govt is not good at SEO and a lot of stats seem to be almost a state secret.

 

[devank]

Does it really matter what 'vacancy rate' exactly means?

Lower the better.. that is all we need to know

 

[Scott No Mates]

Geez. I have worked in places where the vacancy rate is exceptionally low as the tenant who is on holdover is still in occupation is not vacant yet the vacant premises which they have signed a hots is no longer vacant either (though not collecting rent).