Housing stress rises as rental pressure grows

A rental crisis is sweeping major capitals and regional areas across Australia with close to three million people under some form of stress.

Investor Mel bought an investment unit in new Melrose Park development. Picture: Britta Campion / The Australian

The signs are everywhere. Longer lines at rental inspections. Rejected tenants. And even people left stranded without housing.

All are symptoms of the growing rental crisis sweeping major capitals and hard-pressed regional areas across Australia. While the situation is fluid, close to three million people are under some form of stress as they seek to maintain that most crucial element of their lives – a home.

For many it’s a rude shock in the wake of the coronavirus crisis when landlords could not evict tenants. But those times have now passed. Now the problem of finding a decent place to rent is all too real and rents are soaring, leaving many middle-class families scrambling to locate property near their jobs.

The problems have been building for years. A cocktail of housing undersupply and slow planning has meant not enough has been built and the skyrocketing values of homes have also left a generation unable to buy. The impending return of immigration and a pick-up in foreign student numbers has tightened an already rising market.

Real estate groups have seen the switch coming for months but little has been done to prepare for the wave that’s about to hit.

Boston Projects managing director Rhys Morgan, who specialises in project marketing across Sydney, saw signs about nine months ago when rents started going up “quite significantly”.

“We found nearly half of the calls that were coming through were people who were looking for something to lease, which is unusual,” he said.

“That’s when we kind of got the first inkling that the supply in the rental market must be really tight.” And rents have jumped.

A two-bedroom unit in Westmead in Sydney’s west would have rented for $520 a week 12 months ago but is now asking $600-$620 and getting multiple applicants. “Those sorts of options weren’t around 12 to 24 months ago,” he said.

He said there was not enough supply in the inner city market to cater for housing demand. “There’s been no additional supply added to the pipeline,” he said.

Some capital is returning to meet this demand. “That’s been driving investors back into the market because they are seeing, finally, in Sydney you can get a better rental yield,” he said.

“They got a bit scared off at the beginning of Covid because everyone wanted a rent reduction. But then they realised that the underlying factors of supply and demand still existed. It has rectified itself quite quickly.”

The market dynamics are working for investors – even as rate rises loom. Mel, from Sydney’s northwest, said strong rent returns gave her more confidence in her investments. “We knew the market was going to keep going up so we wanted to get in while we could. The rental yield offsets the loan so it was a strategic investment. We could still have our family home and an investment that pays itself off,” she said.

“I think it’s an investor’s market at the moment, because even though prices are dropping a bit, with rents going up there’s enough yield there,” she said.

“We aren’t worried about interest rates because these are long-term investments.”

And tenants are keen.

“We had to bring the settlement forward so our tenants could move in. We never even saw the keys – that’s how much they needed somewhere to live. It’s so important to be compassionate. These people need a home to live in and we want to make sure they feel like they can make themselves at home,” said Mel, who didn’t want to give her last name.

The need for investment to provide rental properties has never been so keenly felt. A NSW Real Estate Institute survey released last week showed residential vacancies in Sydney at their lowest level since June 2017.

“The vacancy rate for Sydney overall dropped 0.4 per cent for (May) to be just 1.8 per cent,” REINSW CEO Tim McKibbin said. “This five-year low in Sydney vacancies is proof that the rental crisis is real. To say this is concerning is certainly an understatement,” he said.

Outside Sydney, vacancy rates in the Hunter and Illawarra also dropped. And while vacancy rates eased in some regional areas, others experienced a further tightening. As has been the case for much of the last 2½ years, sourcing rental stock continues to be a critical issue. “Members in many areas are telling us that the rental crisis is ­really starting to take hold,” Mr McKibbin said. “Demand for rental accommodation is causing a shortage in properties, resulting in an uptick in rent. This is making it more difficult for families to find affordable housing amid growing cost of living pressures.

“In many instances, agents are receiving 15, 20 and even more applications for a single property. And, faced with the prospect of being unable to secure a home, renters are offering above the advertising price or multiple months upfront. Unfortunately, many simply can’t afford to do this.”

Crown Group, a major apartment developer along the eastern seaboard, is seeing 20 per cent rental rises. “I’ve never seen a time like this,” chief executive Iwan Sunito said. The problems have been compounded over a number of years due to government policies restricting supply and banks demanding increasingly high pre-sale coverage to finance projects.

Mr Sunito blamed restrictions on foreign buyers which made pre-selling tougher and said the market was dealing with pricing volatility akin to Asian markets. He called for radical changes from governments to put affordability on the agenda.

Researchers at PropTrack see some relief on the horizon for renters as investors start to pile back into the market. PropTrack economist Angus Moore said Bureau of Statistics lending data showed investors now represented a third of all new loans, up from the quarter market share held through the pandemic.

He expected them to remain in the market despite rising rates. “We will start to see (yields) change,” he said. ”Prices are flat or falling and rents are rising so that will see yields start to increase.”

But Australia’s largest private developer, Harry Triguboff, whose Meriton has 1500 apartments under construction in Sydney and the Gold Coast, strongly rejected claims of a housing crisis.

Meriton charges about $700 a week rental per apartment, up on the reduced $600 a week it charged during Covid.

Mr Triguboff’s said it was difficult to predict what would occur, as no one knew if or when the new federal government would open the migration floodgates.

“With present conditions there is no crisis,” Mr Triguboff said, adding that if more migrants arrived then hopefully he would be able to build his apartment towers at a faster rate.

“Wages have gone up a lot; they never came down. Rents came down; now they have gone back up,” he said.

“I should not sell my apartments. When I sell I do the buyer a favour. But I don’t want to have any debts – that’s why I sell,’’ he told The Weekend Australian.

The future was in Queensland because Australia’s ageing population was heading there, he said. Prices were lower and the climate was warmer. “We have lots of older people who don’t want to work,” he said.

Additional reporting: Sam King, Mackenzie Scott

Originally published as Housing stress rises as rental pressure grows