Whilst we are currently being educated on climate control and water saving techniques, very little is being said about the ongoing deterioration of the rental market. Inner Sydney has seen (over the last ten years) on average, a 2.6 per cent vacancy factor. Today, it is well on the way to falling below 1.00 per cent, which then takes us to a vacancy level never experienced before. Yes, we do have some investors returning however, on the other side of the coin, many are also selling, to take advantage of the new superannuation (Costello’s super idea) incentive. This will see the number of available rental properties falling, while rents continue to sky rocket, based on supply V demand.

This week we read that “a record one in three new mortgages in March were sold to property investors, figures reveal.” Presently, we are seeing a 1:4 investor ratio with apartments and at this rate it simply won’t even touch the surface as the volume of apartment sales (compared to previous years) continues to fall.

Mosman last year recorded 464 apartment sales, 2005 – 481 sales, 2004 – 474 sales, 2003 570 – sales and 2002 – 725 sales. Cremorne last year recorded 313 apartment sales, 2005 – 309 – sales, 2004 – 330 sales, 2003 – 342 sales and 2002 – 380 sales. Neutral Bay last year recorded 290 sales, 2005 – 278 sales, 2004 – 340 sales, 2003 – 388 sales and 2002 – 406 sales. Just as interesting, is that over these recent years, although the economy experienced excellent growth, interest in investment properties had not grown. The simple truth is that governments from all sides are simply petrified of tackling the problems as the entire system requires a dramatic overhaul. There is a strong argument that because the NSW government has been so slow in releasing land, this has fuelled inflation which in turn drives interest rates up simply because people spend more when property prices rise. It is as clear as day that for some strange reason, there is too much concentration on demand and nowhere near enough time spent on supply. Demand increases prices and over-supply brings prices down.

In 2003, the Reserve Bank of Australia commented on housing affordability “ rate at which new houses are built is very small relative to the stock of existing houses; each year’s supply of new houses is less than 2 per cent of the existing stock. Most of the transactions in the housing market are associated with buying and selling existing dwellings. As a result, house prices could rise or fall irrespective of what was happening to the supply of new houses. Perhaps most importantly, homebuyers’ purchasing power is mainly influenced by their access to credit. More than in any other market, the vast majority of purchasers in the housing market are financed by debt. So the supply of and demand for credit become major determinants of house prices.”

The affordability debate will be around for some considerable time however when you take a closer look, it is the state governments that set the taxes and control the land releases. Having said that, the dominant suburbs (being the lower North Shore and Eastern Suburbs) are the complete opposite as these markets are driven totally by demand. This makes the debate even more interesting, as these markets do not have land releases.

There is no better example when you look at our current stock levels which are at the lowest in years. March was our second highest month ever recorded and last Thursday we exchanged $22 million just before Easter. Whilst some are suggesting that Mosman is currently peaking I’m not so sure, despite some record prices being achieved across the board. What I do know, is that I would much prefer to sell homes in Mosman, than a land release at Wallacia. Cheers ^__^

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