Home Insights Some Tenants May Pay The Price Of Rate Hikes, On Top Of Crisis Conditions

Some Tenants May Pay The Price Of Rate Hikes, On Top Of Crisis Conditions

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Finding a rental property is currently difficult for prospective tenants due to the fierce competition and few options.

In addition, when the rental market is tight and the mortgage repayment amount is passed on to tenants, the situation may become even more severe.

Tenants are struggling across Australia as demand surges, supplies fall and prices soar.Photo: Getty


Rental supply is on the decline

Since the beginning of the pandemic, the number of homes available for rent has been declining, and rental properties are now nearly one-third lower than pre-pandemic levels (-28%).

Since February 2020, the number of rentable homes across the capital has fallen by nearly a quarter (-24%) and has plummeted to almost half (-40%) of pre-pandemic levels in the region.

At the same time, rental demand is skyrocketing.

Covid-normal is currently underway in almost every region of the country, which has been converted into rent price pressure, and the rent advertised over the past year has skyrocketed.

Nationally, the median rent advertised on realestate.com.au has increased by 7% in the last 12 months alone.

These pressures are felt throughout Australia, but more and more in the capital as cities revive.

Competition in the capital is intensifying

Compared to May 2021, the number of potential lessees per list at realestate.com.au has increased by more than a third (34.8%) in the capital, but only 0.3% in the region.

This shows that while competition in the capital is intensifying, rental demand in the region is easing as the pandemic diminishes.

This resurgence of rental demand in the capital is particularly prevalent in Sydney, Melbourne and Brisbane, especially in the apartment market.

The apartment market is back with the support of lessees

After blockages and restrictions make apartment life unattractive, borders are reopened, urban life is revived, and more potential lessors are looking for options in the unit market at relatively affordable prices. ..

Since this time last year, the number of potential lessors per unit rental property has nearly doubled, up 62% in Melbourne, 54% in Sydney and 71% in Brisbane.

In recent months, both Sydney and Melbourne rental markets have undergone significant recovery after being affected by Covid, and rental price pressures are increasing as these locations awaken again.

Suspension of migrants has hit these markets the most, and many migrants these days, especially students, usually call these densely populated areas their hometowns.

Currently, in the interior of Melbourne, the number of potential lessees per list has almost doubled since this time last year.

In Melbourne, median weekly rents are below what was seen in early 2020 before the pandemic onslaught, but have risen since the end of 2021.

In Sydney, the median weekly rent is above pre-pandemic levels, 2% higher than in February 2020. This seems to change as rent demand is already increasing against the backdrop of tight supply.

Rental demand is unlikely to ease soon, especially with the reopening of borders. We know that recent arrivals in Australia are most likely to be renters, especially in the heart of Sydney and Melbourne.

But that’s not all. Not only do lessees face vacant rent shortages and ongoing rent price pressure, but as interest rates rise, landlords may pass on some of the increased cost of their mortgage repayments. not.

Cash rates broke from record lows in May, and the Reserve Bank raised interest rates by another 50 basis points to 0.85% in June. The board emphasized their commitment to “do what is needed” to curb inflationary pressures.

This is a clear signal of an earlier stage of tightening, with a rate hike ahead of schedule. Market prices mean that interest rates are moving towards the end of the year above 3.0% and could reach 4.0% by 2023.

And that’s a double blow, putting upward pressure on advertising rents in the capital, ahead of rising total rents set to support consumer price index data.

This adds to the inflationary pressures of the economy as a whole and the outlook for continued interest rate hikes.

Meritable rental

The rental market is very tough in most parts of the country.Photo: Getty


So what about rental supply?

Is it possible that more vacant rental properties will be online and competition will ease for prospective tenants?

Strong rental demand, low inventory supply, and the potential to strengthen rental yields may retain investor interest. However, investor activity has regained Covid’s lows, but it’s still far from what it was a few years ago, indicating that rental supplies could remain constrained.

With the reopening of the border, short-term leasing will also be reopened, which could further reduce long-term rental inventories.

The outbreak of the Covid crisis has had a major impact on the short-term rental market around the world.

According to data from AirDNA, which tracks the short-term leasing industry, Australia’s average occupancy of Airbnb in 2021 was only 26.4%.

This has changed as the border has reopened. Not only is the list available now growing, but occupancy rates are skyrocketing in all capitals across Australia, highlighting the recovery of the short-term leasing industry.

This is another factor that can leave rental supplies under control.

Long-term rental supplies should be boosted by projects scheduled to be completed next year or within two years. The start is still high historically, but has fallen from peak levels. The construction industry is currently facing rising raw material costs and supply constraints.

However, rising real estate prices are slowing, and rising interest rates could curb future development and investor interest.

With the already tight rental market and a population that is expected to grow by 3.5 million over the next 10 years, new arrivals from overseas are coming in and rental demand is rising further, so the cocktail of rental pressure will soon be Does not seem to improve.

Tight supply and intensifying competition can also make it easier for investors to pass on increased mortgage costs to lessees.

It is clear that harsh rental market conditions are unlikely to ease soon and rents are likely to continue to rise.

As rent pressure continues to increase, it is possible that current tenants will be more motivated to purchase.

Mortgage repayment costs are currently increasing, even as real estate prices soften and deposit burdens are reduced. This is a trade-off, as lower home prices are offset by higher mortgage costs associated with higher interest rates, which can be more expensive for the life of the loan.

Mortgage rates have risen and repayments are expected to continue, and many are no longer able to borrow the same amount as last year.

In addition, interest rates are expected to skyrocket in the second half of this year, which not only raises borrowing costs for potential buyers, but also raises uncertainty about future costs over the past two years.

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