Home Insights Building more homes is the solution to the rental crisis

Building more homes is the solution to the rental crisis

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Over the past year, the median listed rent on realestate.com.au has increased by 11%, but new data shows that rent vacancy remains very low.

Nationwide, Rental vacancy rate was just 1.5%, less than half of what it was before the pandemic. And some parts of the country are significantly tighter than that. Adelaide and Perth both have vacancy rates below 1%.

The reason low vacancy rates and rapidly rising rents is that there are not as many rental properties available as there used to be for the number of people wanting to rent.

The solution to this crisis is to increase the supply of rental housing. This means making more real estate investments to bring more rental properties to market.

And there is some good news on this front.

Investors are increasing their share of new mortgage lending (although the number of new investor lending is down, and new mortgage lending is down significantly). Over the past year or so, investors accounted for about a third of the value of new mortgages issued. That’s a significant increase from his 2020, when his share was less than a quarter.

More importantly, the number of rental properties is increasing. This is a change from what we have seen during the pandemic, when many investors sold rental properties and relatively few bought. This means that the total number of rental properties actually fell slightly during the pandemic, which is unusual.

Where are investors buying?

But where are these investors buying? And what does that tell us about our way out of the rental crisis?

One way to look at this question is to see which regions of Australia are experiencing the fastest growth in rental supply. We do this by looking at realestate.com.au for rental properties that have never been seen before, first-time listings for rent.

The overwhelming majority of new rental properties are located in areas where we are constructing new homes.

That’s not surprising at all. New additions to the rental inventory can only come from newly built homes or by converting previously owned homes.

Focusing instead on net increases in rental supply does not change this situation (excluding newly listed rental properties, sales of investors removing properties from rental inventory). Areas where new homes were built saw the largest net increase in rental inventory.

Relative to the size of the existing rental inventory, some of the largest additions to rental supply are coming west and northwest of Melbourne, Geelong and Ballarat, south and southwest of Perth, Boucham Hills and Blacktown in Sydney and east of Brisbane. I’m here.

Melbourne’s inner suburbs and the Gold Coast have also seen significant increases in the number of rental properties. However, these areas already have large rental markets, so their share has been smaller than in other areas.

rental crisis

Unfortunately for renters, the rental market could remain very tight for some time.Photo: Liam Kidson

In contrast, there is no strong relationship between total rental supply growth and local market conditions. Whether a region has experienced significant rent increases, low vacancy, or strong (or weak) recent price increases is less important than whether more homes have been built, at least on an overall level. It seems that.

There is no doubt that these market-specific factors are very important in determining what and where individual investors buy. But overall, building more homes is key to increasing the number of rentals.

But there’s not much relief on the horizon

Unfortunately for renters, the rental market is likely to remain very tight for some time, and as a result, rents may continue to rise rapidly.

We are currently in a rental crisis as there are not enough rental properties. To solve it, you will eventually need to build more houses. This is the only long term sustainable solution.

Unfortunately, if anything, we’re heading in the other direction.

Approvals for new single-family homes have fallen as interest rates have risen and homebuilder plans have shrunk. Approvals for new semi-detached homes and apartments have also remained modest since 2019, well down from the surge in apartment construction seen in the mid-teens.

To solve the rental crisis and improve housing affordability more broadly, we need to accelerate the pace of new housing construction.

But even if that were to change today, it would take time for tensions in the rental market to ease. Building a house does not happen quickly.

Other policy changes will be required to address short-term stress for tenants. In particular, an increase in Commonwealth Rent Assistance would provide targeted and effective relief, especially for low-income households hit hard by the rental crisis.

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