Industry experts tip a rental crisis is looming and governments, both federal and state, will need to spend big time or encourage private investors and developers to build up the stock of rentable properties.
As immigration rises, this potential problem of a lack of real estate for renting might be good news for those worrying about a 25% fall in house prices over the next two years.
As The Australian pointed out today: “Labour shortages and record low unemployment levels prompted the federal government earlier this month to increase the nation’s migration cap to 195,000 people this financial year, allowing an additional 35,000 to call Australia home.
“But the elephant in the room remains the housing supply and a lack of commitment to addressing the issue from federal and state governments.”
And there will also be other new arrivals who will want a place to live.
“PropTrack’s director of economic research Cameron Kusher said the elevated return of migrants would coincide with students arriving for university, with both groups requiring places to live,” MacKenzie Scott and Joseph Lam reported in The Australian.
Kusher says build-to-rent apartments are on the way in Sydney and Melbourne but they’re not happening elsewhere, and new arrivals to Australia usually rent for a few years before trying to own a property. And an industry expert says the property market will be drawn back to five years ago before house prices started to boom.
“What is going to happen, without a shadow of a doubt, is that net migration is going to turn back on at the exact same time as we have the lowest level of apartment completions since 2017,” Mirvac chief executive Susan Lloyd-Hurwitz said. “We’re going to get a significant under-supply on the east coast. At the same time as that we suddenly have 190,000 people per annum.”
This seems like a big problem but it could be huge if you believe the forecasts of buyer’s agent Simon Pressley of Propertyology. He says that on top of the near 200,000 surge in immigrants, 500,000 students are expected, but even if this halved because the pandemic encouraged online learning, it’s still a big number of potential renters chasing too few properties.
Pressley believes governments will have to step up and encourage private investors. “To get people back into proper homes, governments will soon be forced to accept that private investment in housing must be accelerated. It is inevitable that Australia will enter an investor-driven property boom, maybe as soon as 12 months from now.”
Given that governments have been saying no to developers applying for high-rise apartments and numerous builders have gone into bankruptcy lately, the supply of housing is going to be too low when new arrivals come looking for places to live in.
This means the existing stock of homes should have some willing investor buyers maybe just when some over-borrowed homeowners will be looking to exit the market. It all suggests that the 25% wipe-out predicted for house prices could prove a little over-the-top.
It’s interesting to note our RBA’s explanation of the GFC housing crisis in the US in 2008. This is what the Reserve Bank observed: “The catalysts for the GFC were falling US house prices and a rising number of borrowers unable to repay their loans. House prices in the United States peaked around mid 2006, coinciding with a rapidly rising supply of newly built houses in some areas.”
This is a big difference from us here in Australia. We have a crisis of an undersupply of housing, which makes it harder for house prices to fall 25%. It means we will have a rental crisis in coming years until governments either build themselves or encourage private players.
How the October 25 Budget addresses this issue will be an important test for our new Treasurer, Dr Jim Chalmers.