Property investors have been making a comeback to the housing market over the past year and the spike in rents is bound to keep this trend on the rise. Domain.com.au reports that Sydney renters have seen a $50-a-week rise in what they pay to rent, but believe it or not, there are capital cities in Australia that are actually dearer!
The median rent in Sydney is now $600 a week. This has risen 9.1% in Greater Sydney over the past 12 months, but you’d pay $610 in Darwin and a whopping $700 a week in the nation’s capital, Canberra!
This is a staggering change for the rental market when the pandemic meant tourists and overseas students were locked out of Australia.
Inner-city apartment values tumbled and at the time I kept asking property experts on my YouTube TV program if this had created a big buying opportunity. The answers I received were cautious because of the question marks about how long the pandemic would persist, but they all expected a price comeback as normalcy returned.
Ironically, tourists and students are back but not to the same extent as they were pre-pandemic, so this spike in rents is arguably only the start to something that could get more serious in coming years unless the supply of rental properties increases ASAP.
Adding to the problem is that with the lower rents linked to the pandemic lockdown, many landlords cashed in on the hot property price market and sold out, effectively reducing the stock of real estate available for rent.
Another threat to permanent rental properties is the impact of Airbnb. A Forbes report on Airbnb in the US, found: “The influence of the so-called ‘Airbnb effect’ on local housing markets has grown into a significant cause for concern, particularly when looking at its impacts on housing stock, prices and communities.”
The Economic Policy Institute (EPI), a non-profit, non-partisan American think tank, found that the economic costs of Airbnb likely outweigh the benefits: "While the introduction and expansion of Airbnb into cities around the world carries large potential economic benefits and costs, the costs to renters and local jurisdictions likely exceed the benefits to travellers and property owners."
And the Forbes story made scary reading for tenants in popular tourist cities and towns of Australia. “Cities, popular ones especially, seem to fare the worst. In major cities such as Amsterdam, Barcelona, Edinburgh, and Los Angeles, studies on the ‘Airbnb effect’ have found that over-tourism facilitated by platforms such as Airbnb negatively impacts on house prices and communities,” the EPI report revealed.
This view was supported by a Harvard Business Review across the US, which “found that Airbnb is having a detrimental impact on housing stock as it encourages landlords to move their properties out of the long-term rental and for-sale markets and into the short-term rental market".
And the numbers guys found a direct link between short-term stay businesses growing and higher rents. “A separate U.S. study found that a 1% increase in Airbnb listings leads to a 0.018% increase in rents and a 0.026% increase in house prices. It might not seem like much on the surface but there’s a cost creep for those looking to rent long-term or buy,” the Forbes story revealed.
Until federal, state and local councils make a concerted effort to bolster the stock of housing, rental problems will persist, especially when tourism gets back to normal.
But there are two possible positives out there. The first is that big construction companies like Mirvac are spearheading a trend to build apartments specifically for renting. And second, a guy I know who owns an education facility for overseas students recently told me he expects his ‘physical’ student numbers to be down 50% going forward, with the other 50% taking his courses online. Obviously, this lowers the pressure on accommodation for overseas students.