Is The Rental Market Really About To Skyrocket?

We all know housing prices are taking a hit in 2018-19, with Melbourne and Sydney particularly affected. And while real estate sank by an average of around 4.8% in 2018, rents have risen.

Property Observer gave several reasons for the price pressure in the rental market, including how the housing price drop is depressing demand for construction combined with the growing demand for student housing.

News.com.au also alleged that landlords were opportunistically raising rents, quoting figures from rent.com.au to show how February rent figures rose 3.8% in Sydney and 2.3% in Melbourne.
But while some commentators and news outlets bandy terms like ‘skyrocketing rent’, others are taking a more moderate view of the data.

Core Logic’s property report released this week shows that rents actually fell in Sydney and there were only modest rises in other capitals.

Core Logic head of research, Tim Lawless, said: “Sluggish rental conditions are likely the result of higher rental supply coupled with a reduction in rental demand. Higher supply can be attributed to the surge in investment activity over recent years, while the reduction in demand is the result of more renters converting to first home buyers.”

Understanding What Affects The Rental Market

So while rents may be going up in places to the tune of roughly 4%, the figures are hardly rocket-fuelled.In fact, a lot of the media coverage declaring that rents were about to skyrocket comes from SQM Research’s analysis of the Australian Labor Party’s plan to end negative gearing, which MacroBusiness says incorrectly claimed that rents shot up the last time negative gearing was suspended between June 1985 and September 1987.

Instead, MacroBusiness’s Leith van Onselen says, “there is absolutely no evidence that the abolition of negative gearing in the 1980s had any discernible impact on rents” and that the undeniable rental growth in that period was largely the result of pre-existing low vacancies in Sydney (31.4% rise) and Perth (33.5% rise). In other capitals, rents fell or were flat, rather than rising as they would if the national impact of negative gearing was universal. In fact, says Van Onselen, rental growth was much higher in the periods before and after the 1985-1987 suspension of negative gearing.

Van Onselen and SQM have argued the points, but in his article, Van Onselen has brought other analysts in to debunk the argument that historically, a cessation of negative gearing will make rents soar.

The upshot is that it seems falling house prices and a potential end to negative gearing won’t bring about any kind of skyrocketing: as prices fall, renters may convert to first home buyers, which in turn will take the pressure off demand for rental properties. Rents may rise in areas where vacancies are low, but on the whole those rises can’t be said to be jet-fuelling their way to the stratosphere.

Of course, analysis of the Coalition’s budget announcement remains to be made, and then an election remains to be called and concluded, but it seems talk of skyrocketing rents is exaggerated and that while other factors may affect the property industry, the absence of negative gearing isn’t necessarily one of them.

If you are thinking of buying or selling property or you are unsure of how well your property portfolio is positioned in the current changing market, contact United Global Capital today on 03 8657 7640 or email [email protected] for a no cost, no obligation consultation and learn how you can position yourself for success.

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