Rental Crisis Deepens

How long could we reasonably expect governments to take, to sort out a problem like the rental shortage?

I ask the question because we have had the problem of a shortage of options for tenants in Australia – and the consequent steep rises in rents - for a very long time.

And it keeps getting worse, not better.

The latest data from SQM Research shows that, nationally, the vacancy rate got a little worse last month, dropping from 1.3% in August to 1.2% in September. 

Three of our capital cities have vacancies well below 1%.

And in six of the eight capital cities, vacancies stayed the same or got smaller in September. In only two cities was there a slight improvement. 

But the key piece of information is the longevity of this rental shortage crisis. 

Australia has had vacancies below 1.5% for close to three years now.

It’s generally considered that a balanced rental market – one in which there is ample supply of homes for tenants to choose from and rents are stable – is one where vacancies are at least 3%.

The data from SQM Research shows that Australia has not had a vacancy rate as high as 3% at any time in the past 20 years.

The closest we came was 2.9% in April 2020 after the onset of Covid caused major disruption to property markets. 

Since then, the national vacancy rate has dropped sharply, reaching 1.2% in March 2022 – and it has hovered between 1% and 1.3% for the past two and a half years.

According to SQM Research, a further 1,700 rental properties disappeared from Australia’s rental market in September – at a time when the nation’s population has surpassed 27 million.

The SQM report said: “The total number of rental vacancies now stands at 37,932 residential properties, a decrease from 39,665 in August.” 

There are clear reasons why we have had this steady decline in the number of properties available for rental, a shortage which has caused rents to rise and rise.

Mostly, those reasons relate to the decisions of politicians, particularly state politicians, in making life increasingly onerous for the investors who provide over 90% of the homes that people rent in Australia.

State and territory governments have increased taxes on investors and have changed the rental laws in ways that have eroded the rights of the owners.

This has led to a reduction in the number of homes available for rental.

In Victoria, the state with the most onerous conditions for investors including big tax increases, the number of rental properties in the state has fallen by 22,000 so far this year, as the investor exodus gathered momentum on the back of anti-landlord legislation.

That’s according to new data from the Department of Families, Fairness and Housing.

And its data supports a trend identified in the latest Investor Sentiment Survey published by PIPA – the Property Investment Professionals of Australia (PIPA).

The survey described a "sell-off of investment properties around the nation" that has "continuing unabated" and "fuelling fears of an even tighter rental market".

But the problem is most acute in Victoria. PIPA Victoria board director Cate Bakos says legislative changes and increased taxes are driving investors from the state.

A new land tax regime, minimum rental property standards legislation, and policies that are seen as overly tenant-friendly have caused many investors to sell up in Victoria.

Nicola McDougall, the Chair of PIPA says: “This is predominantly due to its plethora of anti-investor rental reforms, as well its new land tax regime that is set to cost investors billions of dollars over the years ahead.”

PIPA’s annual investor sentiment survey found Victoria was regarded as the “least accommodating” state or territory for property investors in the nation, with 22% of survey respondents indicating they had sold at least one dwelling in Melbourne in the last year.

As a consequence, rental availability has fallen and rents have risen.

Data from Domain shows that the vast majority of Melbourne suburbs recorded rent rises this year, continuing a trend that has extended over several years.

According to the Domain rent report for the September quarter, the median house rent in Melbourne at the start of 2022 was $440 a week. Now it’s $580 a week.

The median unit rent was $375 a week in January 2022 and now it’s $550 a week. That’s an increase of almost 50% in less than three years.

But the problems keep getting worse, with NSW being the latest state government to pass new laws detrimental to landlords.

REINSW CEO Tim McKibbin says the lessons for the NSW Government are crystal clear but have been disregarded.

He says: “The removal of landlords’ rights under the guise of populist rental reforms has had a clear negative impact on renters elsewhere.

“The rental reforms by the NSW Government will result in more investors selling up or opting for a short-term accommodation strategy, both of which remove more properties from the private rental market.

“This is already happening and it’s happening at a time when the NSW population is increasing by over 15,000 people each month. The rental market is in crisis and we need solutions, not reforms that we know from recent experience will make the problem worse.”

And that pretty much sums up the seriousness and absurdity of this ongoing issue.

Australia has had a rental shortage crisis for several years but the only policies implemented by state governments have made a bad situation even worse.