Rental crisis – smoke & mirrors

AUSTRALIA's residential rental crisis might be all smoke and mirrors. In Melbourne and Sydney, the downtown is putting more vacant properties on the market, according to independent property research house SQM Research.

SQM Research founder and Adviser Edge’s head of property Louis Christopher said the residential rental crisis may not be nearly as bad as the real estate industry would have you believe.

Christopher said the new national rental index is based on monitored online rental listings, adjusted for false listings and properties that have been withdrawn from the market within the monitored period concerned. The available rental properties are then divided into the total number of established properties available for rent as provided by the Australian Bureau of Statistics.

“Currently there is no independent body that calculates rental vacancy rates. The widely reported vacancy rates compiled by the Real Estate Institutes are entities that represent the interests of their real estate agent members.

“There are some obvious potential conflicts of interests in such an arrangement. And so we seek to provide an independent, more comprehensive index that is free and transparent,” he added.

“There are also some serious questions that need to be answered surrounding the method used by the various industry bodies in calculating the vacancy rate, their sample sizes and how they compile their vacancy rate data.

“I challenge the various institutes to an independent audit of their index and exactly what sample size of the rental market their surveys are actually based on,” Christopher continued.

According to the index, Australia’s nationwide city rental vacancy rate stands at 2.9 % in June, which is up from 2.8% recorded in June 2007.

It appears that the rental crisis in Sydney is coming to an end, the city recorded the highest vacancy rate at 3.6% and now has over 19,500 available properties vacant in the month of Jun – a rise of over 9,000 properties since June 2007.

Melbourne’s citywide residential rental vacancy rate stands at 2.6% in June, which is far higher than the 1.0% vacancy rate published by the Real Estate Institute of Victoria for the month of May. On SQM’s numbers, there are now over 9,000 Melbourne properties sitting vacant.

Christopher said in Melbourne and Sydney, it seems the downturn in the real estate market is actually providing more rental properties as vendors withdraw their property for sale and rent it instead.

“I do not believe for a moment that vacancy rates have ever reached 1.0% in Melbourne. That said, the stories of 50 or more people turning up to an advertised rental property are no-doubt true. I think there are still issues at the lower to bottom end of the rental market place. However, at the middle and upper end of the market place there appears to an abundant supply,” he added.

Hobart and Adelaide recorded the tightest rental market, sitting at just 0.7%.

According to SQM Research, Adelaide’s citywide rental vacancy rate stands at just 0.7% in June. There were 908 properties sitting vacant compared to 1,100 properties a year earlier. Whilst Hobart had just 164 properties vacant. Launceston has the highest vacancy rate of the state, standing at 1.7%.

Perth had the second tightest rental market with a vacancy rate of 0.8%. On SQM’s numbers, there were 1,200 properties vacant down from 1,650 in May. However, the number of vacancies is higher compared to June 2007 when there were just 800 properties vacant.

Perth’s Inner city localities recorded the highest vacancy rate of 1.9% while the southern suburbs of Perth recorded the tightest vacancy rates at just 0.6%.

As with Perth, Christopher said when compared to June 2007 and previous years, most cities are now recording a rising trend in available rental properties and there are several reasons.

“Asking rents in some cities may have reached the point where demand is no longer able to meet the higher rental prices.

“Renters, particularly, younger renters are now opting to stay at home with their parents for longer or grouping together more often,” he continued.

In Queensland, Brisbane’s citywide rental vacancy rate was 1.3% in June and there are 3,150 properties for rent. The Gold Coast has a higher vacancy rate of 1.9% and had 1,300 properties vacant whilst the Sunshine Coast’s vacancy rate was 1.2% and had 580 properties available.

Finally in Canberra, after some extraordinary tight residential rental conditions, there is now firm evidence that the worse of the rental crisis is over.

As at the end of June 2008 there were 490 properties sitting vacant which is significantly higher than the level recorded in June 2007 when there were just 120 properties. The vacancy rate now stands at 1.1%, which was significantly higher than the record low 0.3% recorded this time last year.

Christopher said the statistics do mask the fact that there really is a tale of two markets where there remains an acute shortage of lower end affordable rental stock whilst at the upper end of the market ($600 a week and over), there appears to be an abundance of supply.

“This is more than reflected when one looks at the affluent postcodes (also found freely available on our site) where in some cases, vacancy rates are at close to 10%,” he concluded.

The new rental index will be published monthly.

Australian Property Journal