If you wanted to move into some of Australia’s biggest cities, now might be the time. With a record number of rental apartments currently on the market, tenants can pick and choose between some of the best apartments in the city — and in some cases, pay incredibly low rents for premium product.
According to the latest ANZ-Corelogic Housing Affordability Report, loss of income and travel restrictions have contributed to excess stock levels across Sydney and Melbourne, while all other capital cities saw a drop in total rental listings. In fact, inner Melbourne saw a massive jump in listings, with a 57% increase in advertise rental properties between March and June. Sydney’s city and inner south both saw rental property advertisements increase by 53%.
Analysts pointed to a number of determining factors that were increasing supply levels. Particularly in inner-city areas of Melbourne and Sydney, there was a greater exposure to overseas migration. Provisional estimates from the Australian Bureau of Statistics revealed there was a 98.8% decline in overseas arrivals to Australia in May 2020 compared with May 2019. Another significant issue is significant job losses (driven by the lockdown) which have caused many people to move out of the inner city areas.
“While there has been a formal program to defer mortgage payments, relief for renters has been much less defined,” ANZ economist Felicity Emmett said. “The financial impact has not been evenly felt, and the stimulus measures designed to offset it, will have varying impacts of their own.”
Emmett highlighted Melbourne and Sydney for their “service economies”, noting people working in industries hardest hit by COVID-19 were also most likely to rent.
“Nearly 40% of people who work in the accommodation and food services sectors rent,” Emmett said. “Between the weeks ending 14 March and 27 June, 21% of hospitality workers lost their jobs, compared to an average of 6% across all industries.”
Another factor contributing to increased rental supply is the conversion of short-term accommodation — namely Airbnb — to the long-term rental market. Researchers from the University of Queensland estimate that 4% of the country’s housing stock had been used as Airbnb rentals between July 2016 and February 2019.
|SA4 Region Name||Total Listings Count – 28 days to 15 March||Total Listings Count – 28 days to 28 June||Change in Total Listings|
|Melbourne – Inner||7,011||11,019||57.2%|
|Sydney – City and Inner South||3,611||5,530||53.1%|
|Sydney – Eastern Suburbs||2,189||3,094||41.3%|
|Melbourne – Inner East||1,990||2,382||19.7%|
|Melbourne – Inner South||2,218||2,654||19.7%|
|Sydney – Inner West||2,421||2,729||12.7%|
|Brisbane Inner City||2,426||2,665||9.9%|
|Sydney – North Sydney and Hornsby||3,104||3,293||6.1%|
|Adelaide – Central and Hills||1,060||1,116||5.3%|
So what does this mean for the future of rental properties?
“Before the onset of the pandemic in Australia, investor participation in the housing market was at its lowest since 2001,” Corelogic head of research Eliza Owen said. “Investor finance fell sharply over April and May due to high levels of uncertainty. If sustained, this suggests that the decline in demand for rentals could be partially offset by a decline in the supply of rental property.”
Owen noted Sydney regions with the steepest decline in rental values between March and June are the City and Inner South down 4.1%, followed by Sydney’s Eastern Suburbs with a loss of -3.7%. Melbourne rents have slipped 1.0%, driven by a 2.0% decline in unit rents, while house rents declined by a smaller 0.3%. The Brisbane rent market has had the weakest growth in rent values outside of Sydney, Perth and Darwin, with annualised rental value growth of 0.6% over the past 5 years. Rent values across Hobart have seen the steepest rate of decline of the capital markets from March to June, falling 2.3% over the period.
“Rental affordability already showed signs of worsening in four of the eight capital city markets over the year to March 2020,” Emmett said.
“Affordability may deteriorate further in the coming quarters due to job and income loss. For renters who are less affected, or unaffected by the COVID-19 downturn, affordability may improve markedly, depending on the region in which they are located.”
The take away from all of this is that it will be an interesting few months if you are a renter or a landlord. As a renter, you could get some great deals for apartments located in in-demand areas, so it’s definitely time to start looking if you want to move. As a landlord though, you will be competing against many more properties than usual. We agree with Ms Owen when she notes that some investors may choose to pull their property from the rental market entirely if these conditions continue for too long.
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