What does a looming ‘rental crisis’ mean for Australian property?

Pete Wargent says a rental crisis, rising interest rates and a slight shift back to capital cities are some of the changes property investors need to manage through 2022.

Top property analyst and regular Get Invested guest Pete Wargent once again joined KnowHow property founder Bushy Martin on the show (full episode here) to provide his outlook on the investment markets in 2022.

While there are several trends and events occurring which will impact the property space, Pete and Bushy particularly focussed on Australia’s growing rental crisis.

“We’re already seeing a major rental squeeze right around the country with the exception perhaps of apartments in the CBD, but even those are starting to get chewed up,” Bushy said.

Pete added: “I think the January figures showed the vacancy rate nationally falling from 1.6% to 1.3%. That’s a huge decline in a month. I mean you only need to look at those figures on a month to month basis, and we’re only a couple of months away from near enough zero rental stock.”

Pete elaborated on how rental vacancy rates will further suffer from the opening of borders and potential immigration occurring again.

“I think the Reserve Bank actually did a paper in 2017 where they were analysing the housing turnover rate, and one of their observations was that new arrivals into Australia don’t buy property. They tend to be renters initially – particularly international students, but also skilled migrants as well,” he said.

“So with borders re-opening for visa holders and then more so for skilled migrants going forward, for investors – particularly portfolio investors and landlords – it’s been so difficult to get access to finance unless you’ve got a good mortgage broker. So I can’t really see any way that we don’t end up in a rental crisis.

“There is also a real lag time in terms of construction of new apartments and getting more investors into the market. And now we’ve got this big flood of new arrivals coming – in fact, we’ve got a two year backlog of new arrivals who are suddenly going to be queuing up at the border.

“So we’ll have to wait and see, but I think rents will be probably up 10% – 20% nationally this year … Although, we are starting to see rents going through the roof in some parts of Australia, including south east Queensland. I’ve seen places where rents have gone up 50%.”

Another major change investors need to consider is the rise in interest rates due to inflation.

“The big story at the moment is inflation. Suddenly now we’re getting price inflation and wages growth. So it’s a real change from what we’ve gotten used to over the past 12 years,” Pete said.

“So, it probably means that interest rates will start to rise finally. They have to. They’re at the lowest level in history, but I suspect they won’t go as high as some people think they will.”

But it isn’t all doom and gloom. The opening of borders will provide opportunities for capital cities to thrive, while Pete expects the movement to regional areas will also continue.

“I think the future will be more similar to what it was than people think at the moment. I think some of the regional shift will persist for sure. I mean, I live regionally myself these days and I know plenty of others who do. But by the same token, you can see the investment in office assets happening again and businesses starting to want people back in the cities,” he said.

“Also I think one of the things demographically in Australia is that around 90% of new migrants go to the capital cities. And of course, that just hasn’t happened for two years. Internally, people tend to move to south east Queensland largely, but it’s the new migrants that go to Sydney and Melbourne that have been missing.

“And I guess that’s about to resume forthwith, probably quite soon now as border restrictions are removed. So I think Sydney and Melbourne will continue to thrive as global cities. But internally, some of those regional cities, particularly on the coast, I think the popularity will persist.” 

Listen to the full interview here.

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