Rents Aren't Plummeting — Don't Be Misled!

Whenever I’m asked for my rules for successful investing, I usually begin my response with this: Rule One – stop reading newspapers.

Expressed in a more 21st Century context, stop treating media soundbites as research.

People who base their investment decisions on the white noise in news media are running the risk of making very bad moves in the market.

My observation of the content of news media coverage of residential real estate is that there is far more misinformation than real, accurate, reliable information.

In modern media it’s all about clickbait and I find repeatedly that the headline presented to induce you to CLICK is highly misleading – and sometimes an outright lie.

I could provide dozens of examples from this week alone, but here’s just one classic example.

The headline above an article published on the news.com.au network, the nation’s biggest news organisation, proclaimed: “Worst is over: where rents are plummeting”

This was followed by the following opening statement:

“The worst of the rental crisis appears over across much of Australia, with rents plummeting in these areas. But it’s not all good news.”

Now the headline in this case is more than a lazy piece of sensationalism – because, not only is it untrue to claim that “rents are plummeting” but the content of the article does not support the claim in the headline.

You may have observed that, in the surreal world of journalists, nothing falls or decreases or drops – it collapses, it nosedives, it falls off a cliff – and, yes, it plummets.

Even when the decline is a few percent, barely a blip, it will be declared to be plummeting.

So having made the statement that rents were plummeting and that the worst of the rental shortage crisis was over, the New Limited article utterly failed to deliver on this very big statement.

If it was true, it would be one of the stories of the year. But, of course, it wasn’t true.

According to the article, Queensland’s asking rents “have surged again, increasing across 252 Queensland suburbs by up to 15 per cent since June”.

I’ve checked my dictionary definition of “plummeting” and it certainly doesn’t apply to the Queensland situation.

Next, Victoria. According to this article, there are more than 200 suburbs where rents are now at least $100 a week more expensive for units than in 2021. 

It said: “Well-connected areas like Ashburton, Parkville, Aspendale, Caulfield South, Glen Waverley and Carlton have posted some of the biggest rises in weekly unit rents across the past three years, all of them up more than 40 per cent, according to new PropTrack data.”

No sign of anything plummeting in Victoria – where, incidentally, many investors have sold up and got out of the state because of draconian anti-landlord measures by the state government. So we can expect rents to keep rising in Melbourne.

In Adelaide, rents have fallen a little in the latest quarter in 17% of suburbs examined by PropTrack, but there’s no sign of plummeting in the other 83% of suburbs. 

Adelaide, in fact, has had extraordinary growth in rentals in the past year and, with the vacancy rate still hovering around 0.6%, there’s no real basis for declaring that “the worst is over”.

In Perth, the vacancy rate remains well under 1% and there is no real prospect of rent relief any time soon.

So, looking through the entire article, the only evidence presented to go even close to supporting the noise in the headline is in Sydney.

According to this shoddy piece of “journalism”, Sydney has entered a correction phase.

PropTrack attributes the market slowdown to more rental homes becoming available and tenant demand dropping as more renters moved to share houses or back in with their parents to save money. Migration has also waned in recent months.

PropTrack says: “Demand and supply are working together to see a stabilisation in rental market conditions.”

But no evidence was presented in the article to support the notion that Sydney rents are nosediving.

So, in summary, only in Sydney is there evidence that “the worst is over” and there is nothing at all in this work of fiction is justify the claim that rents are plummeting – anywhere.

So, what is a realistic overview of the situation with the rental shortage crisis.

Nationally, the vacancy rate continues around 1% or slightly above 1%, depending on whose figures you believe.

None of the eight capital cities has a vacancy rate anywhere near 3%, which is the benchmark for a stable rental market with steady rents.

There are no government measures in play which will move the dial on this in the foreseeable future – except decisions which are likely to make it worse, rather than better.

In some locations, however, I do expect rental increases to moderate, because a ceiling has been reached in terms of the market’s ability to pay.

Amid a cost-of-living crisis, tenants cannot keep paying higher and higher rents, regardless of how many people they jam into a three-bedroom house or small apartment.

But rents plummeting? We’re unlikely to see that anywhere, not while vacancies are as low as they are.