Where are the renters?

[bweed]

An interesting take on the housing 'shortage'

http://www.crikey.com.au/2010/10/12/housing-shortage-dont-dwell-on-it-there-isnt-one/

I think the argument is reasonable one. The rental market is the only part of our property market that isn't distorted by varying credit conditions. You can't get a loan to pay the rent so the market is constrained by disposable income. There's no relaxing interest rates or lowering credit criteria to feed more money into the market so it's a real reflection of capacity.

 

[HomeBuyerStrike]

Interest rates are tipped for a 15% increase over the next twelve months? Ouch!

 

[Ausprop]

no one can deny.. rents reflect any market reality.

 

[Aaron Sice]

no one can deny.. rents reflect any market reality.

so true. however, housing shortage there may still be, even if the market can't afford it. that's option number three for the quote below.

There can be two possibilities: either the rental market is fundamentally broken and there is no link between demand, supply and price, or there really isn’t a housing shortage.

unfortunately, this columnist seems to think that prices will fall to make yields more attractive. bzzzt. never happened for that reason. if people don't buy, and also don't build, while we continue our immigration.....well, eventually something will snap.

 

[Ausprop]

Aaron I see this as an argument of what is and what may be. At present there can't be a shortage as rents haven't noved and are actually pretty darn cheap. what may happen in future is another question. Nothing is being built however we have a labor govt so the economy won't grow and they are liekly to crimp immigration so no new demand there.

natural demand growth combined with no supply should see cap values and rents grow. But right here right now, the market seems pretty well balanced. In fact if you look at nearly 20,000 listings in Perth you would have to say oversupplied

 

[VYBerlinaV8]

Interest rates are tipped for a 15% increase over the next twelve months? Ouch!

Another whole percent?

 

[HomeBuyerStrike]

Another whole percent?

No, I was thinking more like 1.25%. A 15% increase in cost with a 0% or even 3% increase in income would be seriously painful. Remind me again the effect of rising interest rates on household disposable incomes?

 

[Aaron Sice]

Aaron I see this as an argument of what is and what may be. At present there can't be a shortage as rents haven't noved and are actually pretty darn cheap. what may happen in future is another question. Nothing is being built however we have a labor govt so the economy won't grow and they are liekly to crimp immigration so no new demand there.

natural demand growth combined with no supply should see cap values and rents grow. But right here right now, the market seems pretty well balanced. In fact if you look at nearly 20,000 listings in Perth you would have to say oversupplied

yah yah i hear what you're saying.

we currently get one new person born or emigrating here every 74 seconds, net.

but i agree - perth is a hard market to pick because it's got many listings.

 

[bweed]

If demand/supply ratio rises but capacity to pay doesn't there's only one other outlet. People will simply not rent. They will begin consolidating the population into the existing housing base, more people per property. Or become homeless.

Whether prices will fall to meet acceptable yield levels is arguable. The consequences of that are big enough that it would likely provoke interference in the market to try and prevent it. I'd say they're more likely to sit flat for a long time until capacity to pay grows to close the gap. Although, a couple of years of flat growth will eventually start to break the spell over Australian views of the property market (the belief that it always goes up). Once that reality begins to set in then it's anyone's guess how the market will react because people will start to look more seriously at the ridiculously low ROI in comparison to other vehicles.

 

[Aaron Sice]

If demand/supply ratio rises but capacity to pay doesn't there's only one other outlet. People will simply not rent. They will begin consolidating the population into the existing housing base, more people per property. Or become homeless.

Whether prices will fall to meet acceptable yield levels is arguable. The consequences of that are big enough that it would likely provoke interference in the market to try and prevent it. I'd say they're more likely to sit flat for a long time until capacity to pay grows to close the gap. Although, a couple of years of flat growth will eventually start to break the spell over Australian views of the property market (the belief that it always goes up). Once that reality begins to set in then it's anyone's guess how the market will react because people will start to look more seriously at the ridiculously low ROI in comparison to other vehicles.

a well reasoned post - highlights a few points i missed.

 

[BV]

An interesting take on the housing 'shortage'

http://www.crikey.com.au/2010/10/12/housing-shortage-dont-dwell-on-it-there-isnt-one/

I think the argument is reasonable one.

This article is a joke.
In Sydney we've increased our rents between 7 and 15% this year.
Rents are a bit on the high side but are still affordable.
I was looking at the rental increases of 1 IP the other day and since 2000 we've increased rents by 65%.

I don't know where this guy gets his information from.
The rental shortage is real and its here to stay.
You can see it in the many applications we receive with every vacancy we get. However, I think we're reaching levels where people are starting to hurt and this will mean less retail spending.

I hope the RBA stops putting up interest rates or landlords will have no choice than to put their rents up again.

 

[HomeBuyerStrike]

The consequences of that are big enough that it would likely provoke interference in the market to try and prevent it.

There's no guarantee that it will be successful though, even in the short term.
http://en.wikipedia.org/wiki/Unintended_consequences

 

[BayView]

I'd say they're more likely to sit flat for a long time until capacity to pay grows to close the gap. Although, a couple of years of flat growth will eventually start to break the spell over Australian views of the property market (the belief that it always goes up).

I've seen this happen a couple of times already - periods of no growth. And then off it goes again for a while.

Once that reality begins to set in then it's anyone's guess how the market will react because people will start to look more seriously at the ridiculously low ROI in comparison to other vehicles.

Periods of no growth won't have a overly large impact on the market as a whole because most (residential) property transactions are by homeowners who either don't know about yields, ROI etc, or they simply don't care because they want somewhere to live which is their own little castle.

If there is an increase in yields due to a no growth period, then certainly investors will come back to property from wherever they went to, and this is normal.

 

[HomeBuyerStrike]

I've seen this happen a couple of times already - periods of no growth. And then off it goes again for a while.

Until it doesn't.

As long as sentiment carries the market through the stagnant period it will regain momentum. If sentiment wains then things start to unwind. Stimulus may kick off momentum or it may have other unintended consequences. Indecision on stimulus can also exacerbate problems.

 

[dan c]

No, I was thinking more like 1.25%. A 15% increase in cost with a 0% or even 3% increase in income would be seriously painful. Remind me again the effect of rising interest rates on household disposable incomes?

Even if rates rose 1.25%, they would still be lower than August 2008.

 

[VYBerlinaV8]

No, I was thinking more like 1.25%. A 15% increase in cost with a 0% or even 3% increase in income would be seriously painful. Remind me again the effect of rising interest rates on household disposable incomes?

Jokes aside, I figure we have another 0.75-1.25% of this rates cycle still to run. I think you may be surprised at how people still manage to get by.

 

[BV]

Until it doesn't.

Last time we didn't have large rental increases was in 2004 due to an oversupply of rentals. (Many tenants had decided to buy their own place in that year).

I remember that year well.
There were for lease signs almost on every street.
Landlords had to lower their rent and/or offer a week or 2 of free rent to get a tenant.

It won't happen again anytime soon because with the contraction of easy credit many developers shut shop or even if they are still around they are only taking on a low number of projects.

 

[HomeBuyerStrike]

It won't happen again anytime soon because with the contraction of easy credit many developers shut shop or even if they are still around they are only taking on a low number of projects.

Rent is a factor of income. There's no shortage of supply in Australia. Plenty of latent supply which will increase in relative attractiveness as rents/interest payments increase.

 

[BV]

There's no shortage of supply in Australia.

You'd like to believe that but the fact is that there aren't enough rental properties where people want to live and work.

And the situation won't change anytime soon so accept it and be prepared to buy your own place because the letter from your real restate agent with your rental increase won't be too far away

 

[HomeBuyerStrike]

You'd like to believe that but the fact is that there aren't enough rental properties where people want to live and work.

And the situation won't change anytime soon so accept it and be prepared to buy your own place because the letter from your real restate agent with your rental increase won't be too far away

People are not limited to two choices i.e. buy or rent. They can also share or live with family and friends. There is ample surplus space, in fact I have two spare bedrooms myself and less than 30 minutes walk to the CBD. I have a wealth of experience dealing with landlords, both greedy and benevolent. I am well able to negotiate contracts in all aspects of my life. You seem to be under the impression that landlords control rent prices. They don't.