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Why do so many housing market predictions turn out to be completely incorrect? Most fail because they measure supply as the number of properties for sale and demand as the number of buyers for them. It is certainly true that the housing market obeys the same laws of supply and demand as any other commodity and its performance is predictable. But, the reason that many forecasters end up with egg on their faces is because there are actually two different types of property markets and they only measure one.
There’s one market for sales and another for rentals. The Bureau of Statistics tells us that renters move far more frequently than owner-occupiers, on average every four years, so that even though renters only comprise about one third of all households, they do most of the moving. In fact, two thirds of all households that move each year are renters.
Understanding
the dynamics of our rental markets is critical to correctly forecasting where our housing markets are heading, not only because the rate of turnover
is double that of owner occupiers, but also because changes in rent demand lead to changes in investor demand which in turn affect prices.
Let’s look at the current state of the rental markets in our mainland state capital cities and Tasmania to see what they reveal about the future. To do this, I have compared the total supply of rental stock for units and houses to the total demand for them from potential tenants in each mainland state capital city and all of Tasmania.
Perth and Brisbane – falling rents and no price boom potential
Low house prices in Perth and Brisbane have encouraged many renters
to become first home buyers. As a result, rental demand has collapsed, particularly in Perth’s unit market and asking rents continue to fall. Until
the rental markets in these cities return to a more balanced condition, there cannot be any significant price rises.
Sydney and Melbourne – strong rent demand and positive cash flow potential
Both Sydney and Melbourne’s rental markets for units
and houses are in balance right now, but rental demand continues to outpace supply. Melbourne’s intake of overseas and interstate arrivals is a massive
85,000 people each year, all of whom must rent while in Sydney three quarters of the city’s annual population growth of 90,000 people comes from overseas
arrivals, virtually all of whom are renters. Rather than prices falling, we can expect massive asking rent rises in future.
Adelaide – unit markets set to boom
There’s a shortage of unit rental vacancies in Adelaide and although this is only a small boutique market rent rises followed by investor demand causing
good price growth is predicted.
Tasmania – strong rent rises and booming housing markets
Tasmania is unique as a market which has both unit and house rental vacancy shortages, and even though it already offers the highest rental yields in Australia,
rents are likely to rise even further. This will lead to more investor interest in the island State’s housing market, so prices virtually everywhere
have boom potential.
This analysis of major rental markets shows us the importance of taking their role into account when we make property market predictions.
Sources: Australian Demographic Statistics 3101.0 Australian Bureau of Statistics
Property Power Database, Property Predictions