UP AND UP – WILL TENANTS STAY OR GO AWAY??

UP AND UP – WILL TENANTS STAY OR GO AWAY??

Interesting to read that this week, the Prime Minister weighed-in regarding the rental crisis which has the potential to wreak havoc on the economy. In an article that appeared in The Australian Financial Review, “Leaders focus on rental crisis” Mr Howard said “I am conscious that rents have gone up, in different parts of the country. I am aware of that, and I know there is some additional pressure because of the very strong economic conditions. Other people have put views to me about rental assistance ….we are considering those things, I am not going to say any more.”

On average, our Rental Dept. has been adjusting rents from between $50.00 and $100.00 per week and in January, we did 15 increases, February 31 increases and for March, we have so far increased rents on a further 42 properties. Not one tenant has disputed the increase however, as would be expected, they are far from happy. For the last twenty five years, the national vacancy rate has averaged 2.9 per cent and today it stands at 1.8 per cent and getting lower. In Sydney it has averaged 2.5 per cent and today it is at 1.6 per cent and will fall to less than 1.00 per cent before Santa arrives. No agent that I have spoken to has ever seen such a rental market and there is nothing to say that in twelve month’s time, the rents will not be increased further.

A report released this week by BIS Shrapnel predicted that rents will rise by forty two per cent in the five years to June 2011. Should this prove correct, then property managers and landlords can factor annual increases of 7.3 per cent. If this happens, then our economy is definitely on a course to recession as tenants will no longer be able to afford a residence in Sydney.

The housing affordability issue enters the debate again as if prices climb higher, rents will increase further and tenants will simply be unable to meet rent expectations. BIS Shrapnel did forecast back in August 2004, that interest rates would peak by late 2006 and would hit around 8 per cent. They actually hit 6.25 per cent !! There is compelling evidence for a much stronger argument on the rental crisis.

The Federal government is considering a rental assistance scheme where it will set aside $2.2 billion. This could be a double edged sword for the economy as it presents a very strong possibility of driving up inflation which in turn would see an interest rate increase. This was compounded when the Reserve Bank Governor spoke with the parliamentary committee this week and hinted that rates were more likely to rise than fall in the future. One particular comment he made, does cause concern. He acknowledged the tight conditions in the nation’s rental market however, he denied that this amounted to a crisis. How can an economy possibly sustain annual rent increases of 7.3 per cent? Currently we are applying on average, 10 per cent increases, so if the Sydney vacancy rate continues to decline, a 7.3 per cent annual adjustment is well within the realms of possibility. Should this happen, it will put enormous pressures on businesses as employees will be asking for financial support from employers. Another case scenario is that they too, will re-locate to more affordable states. This is already happening in NSW within our building industry. Access Economics said last month, that the NSW economy was “so sick that it is at risk of adoption by Angelina Jolie.”

It will be most interesting to see the first report card for 2007 with the first run of marketing campaigns nearing completion. Overall, we have had strong numbers for all price demographics which is most encouraging.

Even more interesting will be the launch by PBL next Monday of its entry into the property market with its new portal, myhome.com.au.

One thing that does not change is the power of Saturday Domain which still remains the most popular with purchasers. If a property appears as “House of the Week”, “Apartment of the Week” or a “Three of the Best” with Margie Blok, you can be assured of big numbers at the inspections. Online continues to be popular, just that Saturday Domain (considering our recent attendances) appears to be more popular! Cheers ^__^

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