According to figures released by SQM Research, Australia’s national rental vacancy rate has increased by 0.3 percent in April and now sits at a record high of 2.3 percent, the highest since the index commenced in 2005.
The high vacancy rate is putting downward pressure on asking rents as Landlords fight to find and retain tenants. It has also caused the resurgence of the for lease sign, something unnecessary when the market was tight.
Roy Morgan research reports the number of investor loans since 2010 has grown by 34 per cent, rapidly outpacing the 4 per cent increase in owner occupier loans over the same period. Many Baby Boomers lost significant portions of their super during the GFC, and has turned to the perceived safety of Australia’s bricks and mortar to park what is left.
The Reserve Bank has warned first home buyers not to try to compete with investors, suggesting the market is “cyclical” and has urged patience.
Dr Luci Ellis, head of the RBA’s financial stability department last week told the CITI Residential Housing Conference in Sydney, that house prices over the past 15 years has accelerated faster than incomes and that transition is “now over.”
It’s fair to say that serviceability calculations are binding for first home buyers and less binding for trade-up buyers and investors. So it’s no surprise that as interest rates have fallen, it’s the trade-up buyers and investors whose demand has increased. Meanwhile first home buyers will feel squeezed out. This is probably more a cyclical phenomenon than a structural one. It is still probably quite disheartening for potential first home buyers. As such, it would not be a good outcome if they responded by overstretching themselves to try to get into the market during upswings. As well as being against first home buyers’ own long-run interests, that would increase risk in the financial system. As experience overseas has shown, you do nobody a favour by trying to solve an affordability issue by making it easier for people to borrow more than they can reasonably service.
RP data’s senior research analyst Cameron Kusher told the ABC, rental yields have fallen from a national average of 4.3 per cent in April last year to just 3.9 per cent in April 2014, saying “We wouldn’t see many instances in which you could find areas where the rental return would cover the cost of the borrowing,”
Kusher remarks, “The investor activity is still rising and at the highest levels we’ve seen in quite a number of years, so my thinking is that investors aren’t really focusing too much on those rental returns, they’re more looking at the capital growth potential,”
“They probably do need to consider the rental return because that capital growth is not going to be there forever.”
It’s a view shared by the RBA’s Dr Ellis. In her speech, Dr Ellis said “Housing prices are therefore going to be cycling around a slower trend than they did in the past. There will be more periods where prices are falling a little in absolute terms.”
The days property is seen as good investment could be numbered.
» Vacancy Rates Record Sharp Rise, Asking Rents Subdued – SQM Research, 19th May 2014.
» Growth rate in investment property loans outstrips growth in owner-occupied loans – Roy Morgan, 19th May 2014.
» Reserve Bank official urges first home buyer patience – The ABC, 15th May 2014.
» Space and Stability: Some Reflections on the Housing–Finance System – Reserve Bank of Australia, 15th May 2014.
Rents fall well behind home price surge – Yahoo 7 Finance, 23rd Mary 2014.
Yep, this is only the beginning. If the unemployment rate continues to deteriorate you’ll start seeing many more for lease signs go up, my place will be one of them.
I have rented my 2bd unit for 16 years and throughout that time have been an excellent tenant. What do I get in return, rising rents year on year above inflation, little to no maintenance work and rude, belittling property mangers who insist on 3 monthly inspections. Apart from that, I have crap neighbour’s and live on a major artirial road, the noise levels are getting worse and worse. Grrrrr
So as of June, I’m packing up and moving in with my partner, to save some serious $$$ and I hope they have trouble finding someone that wants to pay top dollar for this rundown 20 year old, poorly built dog box.
The first thing people do in a downturn is work out where they can cut living costs and I can see many more individuals moving back with family or getting flatmates after years of luxuriously living alone, these factors are going to make vacancy rates increase substantially.
The current economic system, at a local, federal and international level is completely unstable.
I was watching some business program the other night and they were in a state of panic over England’s “booming” economy which is being driving my RBMS with a deposit ratio of 5%. Well, that has been going on in Australia for years: So are Australian’s about to loose the lot, or are the Pom’s being conservative? You don’t need to think very hard about that one.
I was standing in one of Adelaide’s busiest CBD streets about 12 months ago and I could count 8 for lease signs with out moving. Never, ever would you expect people to believe that could occur 5 years ago. I haven’t been in that part of the CBD recently, but it wouldn’t be any better today, in fact one building I often go past has been trying to lease upper floors….for years, like think more than 4.
I read one day that property is collapsing, and the next it’s booming.
Which is it? It’s somewhere in the middle, but the downside is HUGE. With future prospect of working to 70, all of a sudden the younger generation have had a wake up call. Even a massive FHB boost will hardly do what the last one did.
Confidence, IMHO, has been building over the last 12-18months, but suddenly it’s gone. I know in my business our bookings have halved. While the budget was harsher than most expected, it’s hardly a Spain/Greece/Iceland copy.
All it’s done has removed the blinkers off of the public. ‘oh, I didn’t think things were so serious”I thought the debt was under control’ etc. etc.
Interesting times indeed. There’s no stability, no confidence, no jobs, no export growth, no measured CPI (of course there is in the real world) and no interest for those who are already self funded retirees. Yet housing market’s at record highs, stock markets soaring, gold and silver far from highs. It’s a perfect storm. Incredible.
@Jane
moreover, with the new budget, i recon kids are going to move back with their parents, or staying much longer with them.
also, in the not that far future, those kids are no way in hell going to afford the house price(thats assume the house price is not going to collapse). and Chinese buyers are only allowed to buy new homes. by then is the real payback time.
soon enough i will be ready to renegotiate the rent with my landlord.
The dreaded for lease sign is the beginning of the end. We are about to go off a cliff – a Seneca Cliff.
Could be the perfect storm – a capital investment cliff, China slowdown, baby boomers wanting to divest, investors with failing property portfolios, super investment in property going through the roof, overseas funds pulling their capital out….but don’t worry this is the lucky country of milk and honey where property prices only ever go up.
On top of that we have a lunatic PM and an assortment of untalented clowns. What is there to worry about.
DX
Hi, yes agree, the young people growing up today don’t have much choice do they. Unless they want to live in an overcrowded share house, they would be lucky if they could afford to move out of home before age 30.
I also was planning on renegotiating a lower rent as I have calculated I am being overcharged at least $40 – $50 per week too much. I moved here in 1998 and my rent was $150, fast forward to 2014 and my rent has increased to $330. I have done the numbers based on a 3.5% CPI rate and I should be currently paying between $280-$290 per week. I could take them to the RTA and complain but I’ve just had a gutfull the property manager and do not want to pay these scum another cent of my money.
The whole system is unfair and needs regulation.
Does anyone know of any sign writing companies that specialise in ‘For Lease’ signs who are registered on the ASX. If so, let me know so I can buy all their shares.
Hi Jane,
Regulation is what has got us here.
Where buying a house to rent out returns less than the expenses. You can calm the difference as a deduction. Its called negative gearing. Introduced mid 80’s.
Without this regulation I dare say housing in australia would be affordable by all. If the market was left to determine weather a house rented could cover its costs per certain areas. People continuing to out bidding each other since the 80’s would not have happened on the wholesale volume that it has.
This regulation costs us taxpayers over 14 billion annually.
prepper
“So it’s no surprise that as interest rates have fallen,”
No, they haven’t ‘fallen’, they’re being artificially held down by the RBA. Let’s not pretend they react to market forces here.
Hang on to your hats folks as we are headed for a massive asset deflation. The RBA’s concern for us not to over commit ourselves is driven by a desire to protect the banks against mass foreclosures. In Qld over 50% of first home buyers who purchased after 2008 are already under water. Add to that the rising jobless rate and cost of living increases. The result will of course be both rents and house prices falling at the same time. So SELL your house and shares NOW and buy them back in a couple of years or so after they hit rock bottom.
And this gem re-appears as well…
http://www.adelaidenow.com.au/realestate/news/push-to-allow-firsthome-buyers-to-borrow-from-their-superannuation-as-a-deposit/story-fni0ci8n-1226930981296
Hi Paul,
Some might call negative gearing regulation, I prefer to refer to it as manipulation.
Whilst, I agree that the market has turned speculative over the past couple of decades. I believe everything started going heywire under Howard’s rein and many of his policy changes have led us to where we are today.
As far as I’m concerned, if an individual purchases a property for investment purposes and does not do their sums on yeild vs expenses, relying only on capital growth. They should not expect the tenant to cover their mistake!
My landlord is not a negative gearer, he would own the property outright. I should have made my point clearer! What I was refering to was regulating RE/property managers from rent gauging. They seem to be a law unto themselves and someone needs to be monitoring their behaviour more closely. I am happy to pay increases in line with CPI, but rents are rising well in excess of that blurred line.
What we will start to see once rents and wages become more out of whack, is people returning to sharing or they’ll couple up like I’m planning. This is the reason vacancy rates are increasing and will continue to worsen.
Anyway, rant over 🙂
Paul,
Some might refer to negative gearing as regulation, I prefer to see it as market manipulation and a huge waste of taxpayer funds.
I agree that over the last couple of decades, housing has turned speculative and I believe the situation we find ouselves in today was spurred on by the Howard era and his policy changes.
As far as I’m concerned if people choose to buy a house for investment purposes and neglect to do sums on yield vs expenses, relying only on capital growth should not expect tenants to pay for their mistake.
My landlord is not a negative gearer, he would own the property outright!(thanks to me) Therefore, you would think he would be happy with a reasonable rental income but of course the real estate encourage him to jack the rent up every chance they get, it’s wrong!
I should have explained myself more clearly. What needs regulation are the unscrupulous RE/property agents who rent gauge. There need to be some authority who monitors their actions more closely as currently they seem to be a law unto themselves. Happy to pay increases in line with CPI, however this line has become incredibly blurred! I feel there need to be more protections in place for tenants.
The issue is why are vacancy rates increasing? It’s simple, rents vs wages, it’s all out of whack! I can see more people returning to sharing or partnering up like I’m planning.
I feel so sorry for those over committed landlords who soon won’t be able to secure tenants, don’t you? hehehehe!!! I really feel a big shift finally happening and it’s about time, besides “for lease” signs, you’ll also start noticing many more “for sale” signs.
In vino veritas,
I partly agree with the sell shares and housing in order to cushion yourself against a reset in the value of those items, but what are you going to buy to utilise the cash you have freed up?
Gold is either way overpriced and will collapse in value, or possibly be up for confiscation as happened in the US during the depression.
Cash in the bank will be utilised at 50/60% to cover the bank losses as happened in Cyprus, plus you will only able to withdraw minimal amounts each day.
The bank may just declare the deposits forfeit as occurred in the states last year, the bank’s name escapes me at the moment.
Keep the cash at home and you could be up for a police raid and have it confiscated as a proceed of crime. Fighting it in court will possible but the cost would be enormous.
Jane,
The for sale signs outnumber the for rent/lease signs in my area already, all but two houses in my street have been sold at least three times since we bought 20 years ago. One unit next door in a 3 unit “retirement” complex has been vacant for 12 months.
But my baby has moved back in, yay for quiet time lost.
Hi Jane,
I agree regulation manipulation is the same thing.
Chockolate @ 8 makes the same point about the interest rate being artificially held down by the RBA.
You would only have to buy a house in the last 30 years anywhere in aus. If the numberers stacked up or not you would have done well with this simple regulation / manipulation.
I also rent and have a landlord who owns our house among another 50. He also follows direction from his agent on rental increases; we have had 100 % increases in 12 years.
I also own a small business and am fortunate enough that I am able to legitimately claim a large proportion of the rental property as an expense as I use the space for office and storage. Any one can do this.
I also believe part of the reason that we are continually asked to pay such large rent is to help my land lord pay for his more recent property acquisition because they do definitely not cover expenses. I believe he is also doing this because he was a genius the last 30 years. He just had to buy more property and they all have gone into a positive geared position or the equity became more than the owing because of the continual rising assert price through this regulation / manipulation.
There is an unwitting collusion between the owners of property and government. And the majority of these players are not implicit. Also with the large currency expansion buy the fed, boj, ecb, boe and others have had a large impact and have distorted asset prices in aus. and all around the world. We are part of the global economy
The only persons on the other side of this deal is us the tenant.
One thing I do believe is these landlords and agents will soon get a dose of true market forced reality that has some 30 plus years momentums behind it.
What you say about more people doing what you are doing sharing or partnering up like your planning. Is the trend?
One thing mentioned on this blog some time ago, 30 years ago the average person per residential dwelling in aus was 5. something. Around 1 year ago it was 2.4 something. Like the trend this number only has to go to 3.4 for they’re to be a third available properties. aus. wide.
prepper
@ Paul
Good points. My favourite is about how property owners will see 30 years of momentum swing against them. They ALL believe that negative gearing is a sacred goose that will ALWAYS lay golden eggs. BUT! the undeniable fact is that negative gearing will NOT be enough to stand in the way of reversal of 30 years of momentum. Economics and human behaviour GUARANTEE it!
I’ve just seen an acquaintance purchase farm land that should have never been distressed: The farmer thought he’d make a killing in real estate: He did for a while…then he set his sights on foreign property.
Massive amounts of money, coupled with massive debts, coupled with foreign interest rates, laws and currency exchange all proved too much. There is now a seriously distressed farmer selling family land from several generations.
This collapse is going to be spectacular. We already have most central banks printing. Hell, in 6 months the USA fed prints more new currency than Australia’s federal government debt.
Now this is the scary bit: There is all this printing going on, and there is still NO GROWTH! All western economies are completely unresponsive.
The papers are bragging that investor mortgage growth is outstripping owner occupier growth? In the stock market we have a term for people that borrow into markets pushing up their prices beyond sensible: It is:
“Lamb’s to the slaughter”
We all know the type: Those that borrowed in 2007 to buy mining stocks. Insanity.
And I’m not saying that in hind sight: I’ve been bearish on the global economy for close on 15 years now: Don’t confuse bearish with depressed: I have more now than ever. And, now there is so much I can hedge both the upside and the down side.
Humanity will look back upon the end of the 20th century and the start of the 21st and be completely stumped at how the entire world aligned it’s hopes and dreams upon a communist nation to produce riches for all. When the reality is that I CANNOT specify one single item I’ve purchased in the last five years that has impressed me. China, and in fact the entire globe, is producing junk.
China makes the best and cheapest junk in the world.
@Ralph
Buy food producing land. A small farm will become very valuable if it all hits the fan and at least you won’t starve if all your other investments disappear.
whoops…
http://www.theaustralian.com.au/news/latest-news/housing-prices-suffer-winter-blues/story-fn3dxity-1226932194151
That’s probably just the tip of the iceberg,it’s all over dear friends.Our criminal elite have sold everything,that was public and privately owned,to multinational corporations.All done in the last 20 years.One month ago they sold the biggest coal loader terminal in the world,in Newcastle harbour,to a Chinese company.When these sales are made who pockets and where does the money go?Do you wonder how many locals will be working at that Terminal next year.Looks like krudd wasn’t joking when he said to teach the kids Mandarin.Would like to be a optimist but look at reality.The truth stinks.Workers wages have been frozen for nearly 30 years.Houses have gone up 1000% in this time frame(in the cities where the work is).How will our children manage to live in this globalist technocratic disorder.We are the 99% and they are the 1%.The wolves are all exposed for all to see.
we will find our way
prepper
We’ll be ok.
Gen Y will just leave our shores for the baby boomers to foot the bill when the chickens come home to roost. Let them sell off all their houses to that they can afford skyrocketing healthcare and aged care costs 🙂
It happened in Ireland… 1/3 under 30’s simply left. They economy totally collapsed and they have no tax base or young to look after them into their old age.
Its their own fault for not providing houses and services where it was demanded instead of driving people into ‘urban sprawl estates’…
The first thing to go when they went under were all those houses in estates 1+hr from the city with no train, no buses, no shops, no services, no industry.
Now in Australia its happening too because baby boomers don’t want to expand supply in high demand areas around their houses by building up or increasing services to estates and there’s no way for it to go except boom and then bust. Its happened again and again from the beginning of time and it will continue to do so forever…
@ Paulie
I’m Irish and moved to Australia on a 457 visa over 3 years ago to escape the awful recessionary environment in Ireland. During the last few years I’ve seen all the signs here of a bubble that were present in Ireland 2006/ 2007. The Irish government at the time saw trouble coming down the path and did their best to talk up the economy. The Taoiseach ( prime minister) of Ireland at the time Bertie Aherne went so far as to say that anyone who was bearish on the economy ” might as well commit suicide”. The signs of over extension were everywhere from over priced coffee , mobile dog washing businesses etc.. Stupid stuff that people don’t actually need but tend to engage in to impress their neighbours.
When the bust came, it came quick and hard in Ireland. Your right about a lot of the young people leaving and eroding the tax base but the ones who left were young skilled migrants in the main who didn’t want to sit around and draw social welfare. The older people who were leveraged up to the hilt in property couldn’t off load it because the values dropped over 50% and what happened is that it became normalised to engage in moral hazard for a lot of people as a chunk of the mortgage market just refused to pay when they had the means as they knew the banks were in no position to repossess.
Ireland is emerging strongly from the recession now and I am considering moving back as in my opinion ( and I’m no expert in Aussie Politics) the Abbott government are hastening the bursting of the bubble here by introducing austerity policies as a part of an idiology process which has the serious side effect of eroding consumer confidence, stopping spending and stalling the economy at a time it needs stimulus.
Government debt in Ireland in 2008 was at a similar level to Australia at the moment but the amount of personal household debt was very high similar to Australia now. The amount of office space for lease in Brisbane where I live is scary and I’m seeing businesses folding every week.
Theres a perfect economic storm happening here.. Low Iron ore prices, an economy too reliant on mining, a completely uncompetitively high Australian dollar destroying what’s left of manufacturing,a slowing Chinese economy, an inept government, a property bubble driven by unaffordable negative gearing and a generation of Australians who have never live through a recession.
I wouldn’t wish what happened in Ireland on my worst enemy but it’s coming to the lucky country very soon.
Thanks Rory for the interesting discussion.
I noted from Irish Central bank’s report that the arrears were merely 3% when the bubble suddently burst, which seems unusual signal before crisis.
Have you notised other details, unusual/traditional signals in your experience?
These singals could help understand the ticking OZ burst.
@ Millimouse
Typical things I remember from teh 2009/9 period in ireland when the economic bubble popped:
1, Construction activity stopped abruptly, over a period of a few weeks not months. Talk radio call in shows were inundated with tradesmen who suddenly found themselves unemployed.
2, Lending the banks to small / medium business dried up, a lack of liquidity in the economy.
3, Mortgage lending by banks virtually stopped. Prior to the crash there were 100% mortgages available, then it became virtually impossible.
4,The skyline of the major cities were littered with redundant cranes and the countryside full of half built ghost estates as developers went bust due to lack of lending.
5, Irish people decided that the job in Maccas wasnt beneath them after all, but too late as the large hard working immigrant community of especially Polish people were now in these jobs. This lead to a little racism from some ignorant types but not widespread as the Irish in general are a welcoming bunch and appreciate a hard worker.
6, Used car prices tanked over a 12 month period.
7, Rents fell through the floor as Landlords scrambled to cover their property loans. Vacancy rates soared.
8, Unemployment went from 5% in 2008 to 15.5% in 2012
9, Some unscrupulous multinational companies took the opportunity to freeze or slash wages even when they were extremely profitable
10, Big divide developed between the virtually unsackable public sector and private sector workers. Unions protected the public sector from the crash better and there was a lot of resentment from the private sector.
11,People on the street who traditionally wouldnt have a clue about economics suddenly became experts in Bank guarantees, toxic loans etc
12,Those bankers responsible for putting the country in punary were very slow to be brought to justice for lying about the extent of the losses at their financial establishments. This is due to a golden circle of Government, bankers, judiciary and property developers who all know each others dirty laundry and its in none of their interests for the truth to come out.
13, Food prices dropped but not quickly. People started drinking more beer at home rather than in bars.
14, People who wouldnt be seen dead in Aldi now were the first in the car park on a saturday morning
15, Emigration to Australia and Canada soared especially amongst the young people.
16, The over generous social welfare system ensured that few % of the population who never want to work just continued on as normal while vicious tax rises savaged middle income families.
17, The political landscape shifted hugely. Fianna Fail the countries biggest centre socialist party and a party who had been in government for most of the last century were crushed in a general election in 2011 and a new coalition of Fine Gael a centre right party and the Irish labour party came in to goverment with a mandate for change. Nationalist republican party SinnFein, the political wing of the IRA also made huge gains, especially in the recent local elections. The Irish people feel that they are being punished for the debts of the German and french banks who were covered under the bank guarantee in 2008 and whos senior bond holders should have been burned rater than transfer that debt to Irish sovereign debt. The European Central Bank is run for the benefit of Germany and France.The Irish people want a renegotiation of this situation and because we are a small country and dont burn sheep on the street like the French the EU are slow to renegotiate.
In Vino Veritas, you mean like 50 – 100 acres in a fertile area that gets good rain and has a permanent spring?
I have my eye on a couple of places now, it’s just taking time to convince SWMBO to move away from the suburbs.
@Millimouse
This is a classic. Helps explain it a bit. I still laugh every time I see it:
http://www.youtube.com/watch?v=q2nA2szz8dY
I believe the guy is actually an actor, but the same old points ring true.
Thanks Rory for the informative message. Yes there are many similarities between OZ now and Ireland at the end of bubble.
Thanks Matt too
Thanks Rory for your Irish insight, and your first hand experience on the ground. I lived in London until 2005, and when I left, Ireland was indeed the local Tiger economy. Amazing how things change, and especially so quickly. I don’t think us Aussie understand this