Tasmanian rentals: Why things are about to get grim
Soaring rates, steep hikes in the cost of residential building, rents that no longer cover costs – property investors are fleeing the sector and it’s bad news for Tasmania. DETAILS >
Tasmania
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A combination of soaring interest rates and inflationary pressures on the residential building sector is causing real estate investors to flee the field, meaning there are fewer properties available to rent, a leading Tasmanian property manager warns.
Those factors, coupled with the state’s booming post-Covid population, projected to reach 640,000 by 2032, has seen Tasmania’s rental vacancy rate plummet to just one per cent.
Knight Frank Launceston rental department manager Naaman Fraser said that even though rents across Tasmania are rising sharply, property investors were still leaving the field in droves.
“In many cases, landlord’s rent will likely no longer pay a net return,” he said.
While year-on-year rent increases had been steep across most of Tasmania, the market had cooled significantly in the last quarter, Mr Fraser said.
A major factor in the spooking of investors is that, while rents can only increase by so much – they are tied to the value of the property – there was no ceiling to how high mortgages could soar under rising interest rates, Mr Fraser said.
“We absolutely have a rental crisis,” he said.
Investment yields plummeted in Tasmania had now plummeted to their “lowest ever levels,” the Real Estate Institute of Tasmania said in its most recent snapshot.
REIT president Michael Walsh described the situation as “diabolic” and said pressures on the rental market had been building for a decade.
He said the worsening market conditions for investors “exposed” a rental market on the verge of systematic collapse.
“What is glaringly obvious now is that the market condition isn’t that conducive right now for investors to enter the marketplace to help relieve that shortage,” Mr Walsh said.
According to the Housing Industry Association, Tasmania needs to build 3100 new dwellings each year over the next decade to keep up with population growth.
HIA Tasmania director Stuart Collins previously said that while 2021–22 saw record rates of housing approvals and residential construction, he expected that to collapse this year.
“We can see there is going to be a bit of a hole towards the back end of this year,” Mr Collins said.
“It was only 18 months ago we were talking about material and skills shortages as we built a record number of homes.”
The early indicators are ominous. According to Master Builders Australia’s most recent Tasmanian snapshot, new home building approvals plunged 33.7 per cent year-on-year to 191 in December 2022.
As approvals plummet costs are rising – residential construction costs rose 11.9 per cent over the calendar year, according to the CoreLogic’s Cordell Construction Cost Index.
Running parallel to the loss of investor confidence and soaring costs is Tasmania’s booming population.
Leading demographer Bernard Salt, in research commissioned for the Mercury’s Future Tasmania series, revealed that the state’s population, currently about 588,000, was expected to reach 640,000 by 2032.
Tasmania also has a smaller average rate of occupancy per dwelling than the rest of Australia – 2.34 residents per dwelling, as opposed to 2.52 on the mainland.
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