The sign rental market is about to explode

The sign rental market is about to explode

PropTrack’s September rental report showed that property rentals nationwide rose 10.3 percent last year, with most markets posting double-digit growth.

The proportion of rental properties listed on realestate.com.au for less than US$400 also fell to just 19.3% in September 2022, compared to 41.8% at the start of the pandemic.

PropTrack’s rental series are mirrored by other data providers, each of which has reported double-digit annual growth in advertised rents across Australia.

Australia’s rental market has tightened during the pandemic due to the desire for more space, the growing work-from-home trend and the need for home offices. As a result, the number of residents per apartment has fallen sharply, which in turn is boosting rental demand despite sluggish population growth:

The rental supply is also likely to have been eroded by the rise of rental services like Airbnb, which have allowed property owners to focus on the short-term market.

The latter trend may have been particularly prevalent in tourism destinations across Australia, some of which have boomed alongside domestic tourism in the past two years.

Record immigration is a disaster for the rental market

The work-from-home phenomenon appears to be a structural shift that is unlikely to reverse. Therefore, we should not expect the number of people per apartment to fall back to pre-Covid levels any time soon.

Meanwhile, immigration to Australia is picking up steam, with overseas net migration hitting an all-time high of 96,200 net arrivals in the March quarter.

Monthly student visa applications in the first half of 2022 exceeded pre-pandemic levels. And Coolabah Capital’s analysis of higher frequency visa data shows that international student arrivals increased to 500,000 on an annualized basis in the September quarter, with work visas also increasing.

The rapid acceleration of student visas follows the former Morrison government’s removal of the cap on the number of hours students can work while undergraduates late last year and the granting of two-year post-graduate work rights to vocational education and training (VET) graduates.

The Albanian government then used last month’s Jobs & Skills Summit to announce that it will deliver record immigration next year via:

• Increase in permanent admissions of non-humanitarian migrants by 30,000 to a record high of 195,000 per year

• Accelerated temporary migration through:

– Expanding labor rights for international students by removing the maximum number of hours international students can work for an additional year during their studies; and extending the length of work visas after graduation by two years.

– Commitment to reducing the backlog of nearly one million visas awaiting approval.

The Ministry of the Interior has already decided on more than two million applications for temporary and permanent visas in the last four months. Yet there is still a “backlog” of 872,000 visas as applications continue to come in, which the government has promised to process as soon as possible.

The soon-to-be record number of students and migrants arriving in Australia spells further problems for the country’s rental market, particularly in the capitals, which attract the most newcomers.

Where will they live if there is already a lack of housing for the existing population?

Millions of additional people looking for rental housing will inevitably lead to new lows in rental housing, driving up rents and throwing more people into homelessness.

In addition, housing construction will fall behind due to widespread construction bankruptcies and rising input costs.

Higher rents will fuel inflation and drive up interest rates

Rents currently account for around 6 percent of the Consumer Price Index (CPI) – the main inflation measure used by the Reserve Bank of Australia (RBA) to set interest rates.

Curiously, the Australian Bureau of Statistics (ABS) rental series – measured as part of the CPI – rose just 1.6 per cent in the year to June 2022, which was about a quarter of the headline inflation rate (6.1 per cent). .

Therefore, the ABS rent measurement is lagging behind and does not reflect the real market situation as measured by PropTrack and the other housing data providers.

Once the ABS update their rental series with the actual market, ABS rents will inevitably skyrocket, significantly increasing the Australian CPI.

In turn, the RBA will come under more pressure to raise interest rates to curb inflation.

Leith van Onselen is Chief Economist at MB Fund and MB Super. Leith has previously worked at the Australian Treasury, Victorian Treasury and Goldman Sachs.

Read related topics:cost of living

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