Oz: vacancy rates ‘scraping the barrel’

Residential rental vacancy rates have hit an all-time low of 1,9% across Australia for the past two and a half years, according to December 10 data published in the Mortgage Choice/REIA Real Estate Market Facts report, September quarter edition...

This, according to the report, compares with a 20-year average of 3.6%. The industry benchmarks anything below a 3% vacancy rate as indicative of an undersupply of rental accommodation.

Australian Bureau of Statistics data show that all States and Territories experienced population growth over the 12 months to June 2007, ranging from 0.7% in Tasmania to 2.3% in Western Australia.

‘This has contributed in part to the shortage of housing stock, with the construction of new dwellings lagging well behind demand,’ says Noel Dyett, REIA President.

‘Investors are also behaving cautiously in an environment of interest rate rises, with potential for more to come. As a result of very tight vacancy rates, over the past year, rents have increased significantly right across Australia,’ says Noel Dyett.

Darwin ‘most expensive’

Darwin is now the most expensive rental location, with a 34,4% annual increase in the median rent for a three bedroom house to $440 (about R10 384) per week and a 51,1% annual increase in the median rent for two bedroom other dwellings to $340 (about R8 024) per week. Sydney and Canberra renters also pay $340 (about R8 024) median weekly rent for two bedroom other dwellings.

The cheapest rental location is Adelaide at $255 (about R6 018) per week for a three bedroom house, and $205 (about R4 838) per week for a two bedroom other dwelling, although this represented annual growth of 8.5% and 7.9% respectively.

‘Increasing house prices and declining home loan affordability are keeping more people in the rental market, with the short-term outlook difficult for lower income earners in particular,’ says Dyett.

‘Over the medium term, there should be an improvement in vacancy rates, and a slowdown in rent increases, as improved yields make it more attractive for investors to place their funds in the property market.

‘There were double digit annual returns on three bedroom investment houses in Melbourne, Brisbane, Adelaide, Canberra and Hobart in the year to September 2007. Returns on two bedroom other dwellings were even better with only Sydney investment properties returning less than 10%.

‘Over five years, the average annual return on investment property exceeded 10% in all capital cities except Sydney and Melbourne. Over ten years, every capital city exceeded the 10% mark,’ says Noel Dyett.

Rates remain a ‘bigger’ concern

Mortgage Choice National Corporate Affairs Manager, Warren O’Rourke says, ‘Our annual Consumer Sentiment Survey found that 44% plan to invest in property in the next year despite the vast majority (92%) believing interest rates will rise in the first quarter of 2008. Rates remain a bigger concern (45%) than economic management at federal level (25%).

‘In fact, economic sentiment is overwhelmingly positive: 83% were confident the nation’s economy will be strong during 2008. Despite rising housing prices, home loan affordability problems and the global credit crunch, sentiment has increased from last year’s 69%’.