Rent will not go up forever

[feihong]

I think this article has crunched the myth that rent will keep going up in bad time.

http://www.bloomberg.com/apps/news?pid=20601213&sid=aI.M_5CqhbCY&refer=home

The key here is the housing formation pattern change will affect the demand for housing significantly. There is no reason why this cannot happen in Australia imho.

 

[Highlygeared]

I'm seeing some tapering off in rents in my portfolio, perhaps even a small amount of softening. Could be just the time of yr tho. We shall see in Jan/Feb if heat comes back into the market - I'd guess the economic landscape by then will be much worse so wait and see.

However, some experienced investors on this forum suggest rents will not fall and if it does, by an immaterial quantum, despite a recession. I've only invested through one cycle starting in the late 90s so I cant vouch for that but a face value, its hard to think rents will hold up well if the economic environement gets worse.

If the govt turn off the tap on immigration, which I hope they dont, then 'undersupply' will cease to exist IMHO.

 

[marg4000]

Rents can and do fall.

In the time we have owned IPs we have seen some downturns in rental income, or at best rent staying static for several years (early 90s).

Inducements to tenants to rent properties included rent free periods (up to 4 weeks) or sometimes a lump sum to help with moving costs.
Marg

 

[letiha]

Rents can and do fall.

In the time we have owned IPs we have seen some downturns in rental income, or at best rent staying static for several years (early 90s).

Inducements to tenants to rent properties included rent free periods (up to 4 weeks) or sometimes a lump sum to help with moving costs.
Marg

You will find that these inducements only occur in areas where there is an oversupply, in areas in demand there should not be a need for inducements if the rent is at market.

 

[GreatPig]

or at best rent staying static for several years

Especially if the government decides to help the battlers during the economic hard times by introducing rent controls again.

Don't forget political risk.

GP

 

[lizzie]

Especially if the government decides to help the battlers during the economic hard times by introducing rent controls again.

wow - wouldn't that see a mass exodus of investors out of the market!

 

[letiha]

With the surplus radpidly decreasing it will be interesting to see where they will get the money to do that.

 

[Ausprop]

a bit like arguing that milk won't go up forever

 

[alexgsz]

I think this article has crunched the myth that rent will keep going up in bad time.

http://www.bloomberg.com/apps/news?pid=20601213&sid=aI.M_5CqhbCY&refer=home

The key here is the housing formation pattern change will affect the demand for housing significantly. There is no reason why this cannot happen in Australia imho.

This is a UK based article on the UK market, I don't see the same happening in Aus.

In the UK there is an abundance of properties available to rent, and has been for the 12 months I've been here. Property prices are dropping as nothing is selling... why buy now when it will be cheaper in a few months.

People are now putting their places up for rent rather than selling in a soft market. Add to the mix the massive job losses coming around London/UK and negativity as we head into the recession and more and more people are holding off purchasing property.

This has led to the old fundamentals kicking in.... "supply and demand"
There is more supply in the rental market and its increasing, demand is not keeping pace, thus people are lowering their rental prices to compete to attract a tenant.


Now back to Aus, I'd like to know where we have a glut of rentals available? Last I heard we were at near record lows in vacancies.
I'm not saying it couldn't happen in Aus, just we don't have the head start in supply that was in the UK.

alexgsz

 

[lizzie]

People are now putting their places up for rent rather than selling in a soft market. Add to the mix the massive job losses coming around London/UK and negativity as we head into the recession and more and more people are holding off purchasing property.

This has led to the old fundamentals kicking in.... "supply and demand"
There is more supply in the rental market and its increasing, demand is not keeping pace, thus people are lowering their rental prices to compete to attract a tenant.

i was reading an article on the weekend about the uk problem with unemployment etc. they have a large immigration base of workers in the uk (from spain, north africa etc), and apparently when jobs go, the immigrants just move back to their home country.

ergo - demand for housing slackens off significantly in a downturn.

unlike australia ... given the stringent hurdles to jump thru to get into this country in the first place, how many immigrants do you think would just up pickets and head back to their home country if they lost their job?

 

[sojourn]

I think some of the student market may be affected which is fairly important in some areas, for example where I life in South Australia. There are wealthy students from OS, but there are also many who are doing it on a shoestring, working somewhat illegally cash-in-hand in restaurant jobs and the like which may suffer because people just aren't eating out as much. And so on. They and their parents may not be able to justify the cost of sending their children OS for their education.

Other factors may be that the rental market is also affected by the fact that people just can't pay what they can't afford. If unemployment increases, then there will be individuals, couples, and families who will be breaking rentals they previously had no trouble paying. People will do whatever it takes to survive, moving from houses to units, back with their family, share-housing more, living in caravan parks and so on. There will be an increase in the homeless. Let's hope it doesn't get to that stage.

Those skilled immigrants who have moved here on the promise of work, who can't find that work, or resent the high taxation (relative to home) a percentage of these people might decide to return home.

I'm really playing devil's advocate here. But I think if it can happen in the UK, it can happen here. I can see scenarios where that could occur.

 

[Highlygeared]

This is a UK based article on the UK market, I don't see the same happening in Aus.

In the UK there is an abundance of properties available to rent, and has been for the 12 months I've been here. Property prices are dropping as nothing is selling... why buy now when it will be cheaper in a few months.


alexgsz

Alex

given the extent of the supply at present, are you seeing asking rents FALL or are they just trending sidewards? There will be exceptions but by and large?

Regards

 

[feihong]

I think some of the student market may be affected which is fairly important in some areas, for example where I life in South Australia. There are wealthy students from OS, but there are also many who are doing it on a shoestring, working somewhat illegally cash-in-hand in restaurant jobs and the like which may suffer because people just aren't eating out as much. And so on. They and their parents may not be able to justify the cost of sending their children OS for their education.

Other factors may be that the rental market is also affected by the fact that people just can't pay what they can't afford. If unemployment increases, then there will be individuals, couples, and families who will be breaking rentals they previously had no trouble paying. People will do whatever it takes to survive, moving from houses to units, back with their family, share-housing more, living in caravan parks and so on. There will be an increase in the homeless. Let's hope it doesn't get to that stage.

Those skilled immigrants who have moved here on the promise of work, who can't find that work, or resent the high taxation (relative to home) a percentage of these people might decide to return home.

I'm really playing devil's advocate here. But I think if it can happen in the UK, it can happen here. I can see scenarios where that could occur.

yep!! That's exactly why I posted the article here.. you've said all the things I wanted to say.

 

[joe jo jo]

Buy in dense (under supply) areas and you may avoid much of this issue, assuming the economy doesn't go completely belly up. It is not a debt dependent income stream (like CG), but definitely will be impacted by a sour economy.

 

[Witzl]

i think you migth underestimate the staying power of those skilled migrants.
It seriously takes a LOT of time, effort, and also costs to migrate to australia.... so unless they were faced with total bankrupcy, I doubt skilled migrants will be returning to their home countries if they merely lose their job.

Migrants dont move here on the promise of work. They move here cos this is an awesome country full of opportunities that otherwise dont exist in their home country. Many give up EVERYTHING to come here.

 

[letiha]

My Boyfriend is from the UK and was a sponsored skilled worker and his visa is about to become temporary. he is at home at the moment and said that he would be lucky to get even a job at a pub, whereas in Australia he gets contant job offers, 2 in the week before he left (early November).

So i doubt that they will be packing up to go back home because the situation is even worse in the UK.

 

[GoAnna!]

My expereince is that rents DO increase during the downturns. This may not be true of every location but in those areas with less development of new housing, growing populations and therefore a shortage of rentals there will be rental pressure and rental increases. Of course there will be areas that do not experience this with large employers moving away or radically down sizing and in these areas rents may fall. There is a not a one size fits all answer.

 

[feihong]

There is a not a one size fits all answer.

I agree, and I believe the Bloomberg article does not say that all the rents in the UK are dropping either. Rental yield and vacancy rate is a combination of rental affordability, rental supply, and proximity to employment centre (not necessarily just CBD). In the article, it highlighted the impact of housing formation pattern on rental supply, and this is the point I'm trying to make that Australia is not immuned to this in foreseeable future.

Lower end/affordable rental places close to employment centre should still experience favourable trend.

 

[want2bewealthy]

a bit like arguing that milk won't go up forever

I hope Snickers bars decrease in value over time, I really like them.
I could live with milk stagnating for a while, this would thus defeat inflation for the time being, allowing me to purchase at below market value, freeze n hold for a profit later on.

 

[exstatic]

but milk being stagnant in price means that snickers won't come down in that time, because snickers are made from milk also.

I like snickers too.. as well as cherry ripes.