What rising rental prices and housing affordability means for investors

‘Property Professor’ Peter Koulizos explains why rents are up while housing affordability is improving in Australia in 2021.

Peter Koulizos, better known as ‘The Property Professor’, is an investor, researcher, author and university lecturer who has been educating in real estate investment for over 20 years.

In light of the unique opportunities arising in Australian property in 2021, Peter shared his latest insights to KnowHow founder Bushy Martin on the Get Invested podcast.

He talked about the surprising trends in rental properties, with rent prices increasing and investors and landlords sitting in a prime position.

“I was a little bit worried at the beginning (of the pandemic) because I know international students are a large part of the rental market, and we weren’t going to get any extra international students coming. And with travel virtually stopped, I thought, all of those people that have Air Bnbs, they’re going to put them onto the rental market. So, we’ve got increased supply, decreased demand and rents only have one way to go and that’s down,” Peter said.

“But it is just phenomenal. We are getting a significant increase in rent because it’s not so much that there is a huge demand, but it’s more that there is a limited supply. What’s happening is, typically out of ten houses, seven are owner occupied and three are rentals. So out of those ten though, now they’re all being bought by owner occupiers, in particular first time buyers. So there’s three less rental properties.

“You multiply that by a thousand, 10,000, 100,000, and that’s a significant dip into the rental supply. So what we’re seeing here is we might have the same amount of people looking for rental properties, but there’s just a lot less rental properties to pick from. So there’s only one way for rents to go, and that’s up.”

But is this a sustainable trend? Peter explained that despite what’s happening now, this movement could change within the upcoming months.

“Soon after COVID-19, our regional markets experienced a huge demand for rental properties because as soon as the boss said you can work from home, home doesn’t have to be near work anymore. So places like Brisbane had a huge demand for rental properties on the Sunshine Coast, in Melbourne huge demand for properties on the surf coast or the Mornington Peninsula,” he said.

“Now, let’s say these people moved out in April or May last year, and let’s say they sign 12 month leases. It’ll be interesting to see what happens now if they renew those leases or whether they come back to the city because, admittedly, working from home was a novelty.

“So whether it’s sustainable or not … to shift your place of rent is not that hard. But to sell up and shift out, that’s a very different story. And I haven’t seen a lot of people moving out and shifting permanently to the regional areas, certainly not as many as renters.”

However, Peter confidently predicted a continued change to the structure of both homes and workspaces, something investors and landlords need to consider within their own properties to maintain value and appeal.

“I think one thing that will change is people are going to have at least one, if not two, dedicated studies in their house, because working from home is going to be a long-term trend that stays with us,” Peter said.  

“Where commercial property is concerned, co-working spaces are going to become very popular. These are a little bit like serviced offices, where you might have lots of different companies using many different offices within the one building, but they might share a boardroom, the photocopier or the kitchen facilities. I know globally that is a trend, especially for entrepreneurs, to have the ability to work in amongst other start-ups. So I think for commercial property, we’re going to see a very big change from traditional office buildings to more co-working offices.”

So, with these trends in mind, combined with the new legislation on lending laws and changes to stamp duty, should investors and home buyers look to purchase a property? Peter said yes, particularly considering the improved housing affordability compared to previous years.

“I break down the ability to buy a house and and own a house into two. One is housing attainability, which is the ability to save a deposit. And the other one is housing affordability, which is the ability to continue to maintain to pay the mortgage,” he said.

“Now, I’m contrary to most property academics and most property commentators. If we just look at housing affordability, that is the ability to pay off a mortgage. It is actually easier today than it was, say, back in 1990, and the main reason is because interest rates are so low.

“So in my opinion, if we look at housing affordability as the capacity to pay your mortgage, you’re much better off today than you were in the past. But where people are worse off is the ability to save a deposit to buy the house.”

He also recommended that investors and home buyers consider purchasing now before prices soar even higher.

“I think if you were looking to buy property to make a profit, a short term profit in particular, we all should have bought last year. But, you know, we’re all geniuses in hindsight. But you’re better off buying this year, because I can guarantee you next year property prices will be higher than they are this year. And in some places they will be significantly higher.”

Listen to the full interview here.

Get the right property investment strategy, the best finance deal and everything you need to be a successful property investor. Talk to the team at KnowHow, now.

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