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Why rents will stay high for years

A catch-up in immigration numbers means a blowout in rental demand, not just in 2023 but for years to come.

The rental vacancy rates of 2023 can be expected to extend for several years.
The rental vacancy rates of 2023 can be expected to extend for several years.

This year’s immigration intake of around 400,000 means a city the size of Newcastle has effectively arrived looking for accommodation within the nation’s existing housing stock.

It’s the key reason rental incomes are soaring and vacancy rates are close to 1 per cent.

Moreover, there is very little to suggest the scenario of demand greatly outweighing supply will change over the next three years.

Very few of 400,000 immigrants expected to enter Australia this year will buy into the housing market.

Even the minority of this group, who might be able to immediately purchase a home, would still need many months before they settled on a property to purchase.

As a result, the rental vacancy rates of 2023 can be expected to extend for several years.

“Even if we went back to, say, 250,000 immigrants next year, this demand comes on too of housing stock where there are big plans for more supply – especially from government – but it simply take years to actually arrive on the market, says today’s guest on the podcast, economist Saul Eslake.

Meanwhile, the outlook for house prices is considerably more subdued, but likely to be moderately positive and key forecasters suggest this calendar year may see a return of about 3 per cent for the 12 months to December and perhaps 8 per cent in total since the depth of the Covid-19 downturn.

Overall, rents have been rising – and rising strongly – but house prices are still around 1 per cent behind where they were at the beginning of the pandemic.

Who is the guest?

Saul Eslake of Corinna Economic Advisory

Why him?

A former chief economist at ANZ bank, Eslake is now a leading independent economist

What are the topics?

* The very strong outlook for rental investment property

* Why house prices can keep rising moderately from here

* Rock bottom home ownership levels for younger Australians

* Hobart set to slip from Australia’s fourth most expensive city

Question of the week

Regular listener Jonathan asks:

“I understand that long-term residential rental growth in Australia might be

close to long-term inflation, so perhaps approximately 3 or 4 per cent pa. Can you confirm

this?

If long-term rental growth is only 3 or 4 per cent and long-term capital growth is

6.8 per cent pa then does this mean that over time rental yields for residential

property will drift lower and lower? Will this eventually slow capital growth?

What is your prediction for residential rental growth in future years?”

Questions always welcome to the podcast, via themoneypuzzle@theaustralian.com.au

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Original URL: https://www.theaustralian.com.au/business/wealth/why-rents-will-stay-high-for-years/news-story/00833be66371622eee526a96b4a44ba5