Renters Looking for Relief from High Rental Prices

With interest rates dropping and the real estate industry starting to show some signs of life, this week’s decision by the Reserve Bank not to follow through with another drop, while expected by most in financial circles, was disappointing news for other sectors of the economy. It will be another three months before the Board meets again, and for industry sectors struggling to keep their businesses solvent, this will be a very long time. For people looking for residential property to rent, the hope that lower interest rates would mean that rent prices would also start to fall is unfortunately not founded in economic theory.

All economic activity moves in cycles, and being able to predict both the peak and the trough of the next cycle separates the smart investors from the punters, with the first group seemingly able to increase their wealth regardless of the state of the economy, and the latter not able to take a trick! Having the courage to buy when everyone else is selling in a panic, then offloading when others are waiting to get that little bit more profit is what separates the winners from the losers. With house rents rising by 7% over the past year, and unit rental prices by 9%, conditions are difficult for renters, and the lowering of interest rates is having no impact on these prices.

Some property management agencies are publishing vacancy rates of just over 1%, depending on the location of their rental stock, with the average overall for Sydney being 1.6%. When the vacancy rate is lower than 3%, this indicates a very strong demand for rental accommodation. It is this demand, rather than interest rate movements, that is driving up rental prices. This is a classic economic supply and demand scenario where the commodity in short supply i.e. good rental accommodation, is being pursued by renters prepared to pay a higher price to get what they want. As long as there are people in the rental market with the capacity to pay these prices, rents will either continue to rise or at the very least, remain static.

There are encouraging signs that property sales are beginning to recover in respect of properties priced around the $500,000 mark. If a significant proportion of these properties were placed on the rental market with property management Randwick agencies, it may soak up some of the demand, but it’s hard to see that this would make much difference to rental prices. It would take a significant flood of new rental properties to hit the market for rental prices to fall significantly.

In the short-term, not a lot will change, but the long-term solution is for the housing market to recover and generate a surge of new building activity. This will flow through to the rental accommodation market and increase the supply of rental properties so renters don’t have to compete so fiercely for somewhere to live.

http://www.focuspropertymanagement.com.au