2008 Spring

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The ingredients for rent rises are all there: • Investors are not buying, therefore developers are not building. Bingo! Investors are a key ingredient. Developers rely on investors more than owner occupiers. Many properties are sold as investments off the plan and a good percentage of these transactions take place even before construction finance is approved. When investment is down, properties are sold to owner occupiers and this reduces the share of accommodation available for rent. • Generation Y put a lot of pressure on the rental market: renting is not an intrinsic part of this demographic, in fact, if given the chance and affordability space, Gen Y would flock to the market, using the Internet to source important property information. But, resultant from the deficiency of adequate, well placed and affordable property, Australia’s young adults are choosing to rent homes that are near where they need or want to spend their time. This in turn directly affects vacancy rates and rent prices. • Australia’s Population increase also affects supply and demand: the number of people leaving Australian shores is not enough to level out the demand for accommodation placed on the rental market because of a growing population with limited supply. • Building approvals are down because Governments impose many restrictions and taxes on the developers: The NSW government in particular imposes heavy taxes on property developers. Real Estate Institute of New South Wales (REINSW) President Steve Martin believes pressures could be eased if tax relief and other incentives are offered. It must also be noted that governments have always imposed taxes of varying degrees, so why does it matter now and not between 2002 and 2004 when apartment buildings were mushrooming everywhere? Building approvals are slipping, but the affects of these should not be affecting current rent levels. The drop in last June’s figures will not be felt for another 18 months to two years, when the buildings are completed. The question then is: why are investors not buying, even though rents are high and o c c u p a t i o n i s v i r t u a l l y guaranteed? Rate of return on an investment apartment is currently at 5.1%, much higher than when the market was running hot in 2003. It is the value of a property, together with the interest rates, that makes residential property unattractive to invertors. Unfortunately, in Australia there are investors who fuel the property market when things are looking up and then desert the market when sentient is not favourable. It is my opinion that one of two things must happen so that investors return to the market. First, interest rates must come down so that the real cost of owning an investment property becomes less of a burden. This is most likely, given the latest economic indicators. Or, alternatively, property values must come down, as the continuation of rising rents can only last as long as tenants can afford it and most tenants have almost reached this peak. More should be done to attract middle level investors to the residential property market. Small family superannuation funds should be encouraged to participate and then, when more cashed up investors begin to partake, interest rate levels will cease to be as significant. Interest rates are only one factor in the purchasing decisions made by investors. The others are property values, rental return, building expenses, capital gains and long term viability of the locality. These factors, in conjunction with the other economic and societal conditions in Australia, affect the Australian rental market. Page 6
G e n e r a t i o n Matilda Haddad, Communications Advisor A discussion on renting in Sydney is not complete without also taking a look at ‘Generation Y’ and their presence in the housing market. As described by the Centre for Affordable Housing, housing is a high price commodity. Although the last census shows the median gross individual income increased by 24 per cent between 2001 and 2006, house prices have doubled in all the major capital cities, making affordable home ownership an unattainable pipe dream for many of Australia’s young people. The First Home Owner Grant has been fixed at $7,000 for over eight years and with doubling house prices, it no longer adequately provides the bolster it once did. Figures from the NSW Department of Housing and Australian Bureau of Statistics (ABS) show that first home buyers account for barely one in six (18.4 per cent) of all home purchases. As a result, the Real Estate Institute of Australia (REIA) has called on the government to make it easier for first home buyers to get into the market by doubling the grant. R e n t average annual wage, where as in 1996 only four times the average annual wage was needed. Also, home buyers now dispense around a third of their income (32.3 per cent) on mortgage repayments where as in 1996 it was 17.9 per cent. A McCrindle report highlighting the importance of young Australians participating in the economy and the housing market shows this demographic make up around 20 per cent of the population (4.2 million). Generation Ys are more formally educated than their predecessors and with improved high school retention rates in years 10 and 12 and record levels in university admittance, one would assume Australia’s young people would be economically better off, but many are not. Further education delays entry to the work force and increases the competition in labour markets amongst graduates. As a result, many young people are finding themselves either underemployed or struggling to find stable, long-term employment. With reports showing that 40 per cent of Gen Y are employed on a casual basis and McCrindle research uncovering that 57 per cent of Gen Ys still rely on their parents for some financial support, it is no wonder that 67 per cent of this demographic believe home ownership may be unattainable in their lifetime. House prices, the global credit crunch; increased fuel costs; the rising cost of travel and food, coupled with increasing interest rates and mortgage repayments, push young people into the renting market or force them to stay at home till much later in life. Department of Housing figures show the average home now costs seven times the Things are currently very tight in Sydney. Vacancy rates have dropped dramatically, moving between 0.9 and 1.4 from May to July. These figures, released by the Real Estate Institute of NSW (REINSW), show a recurring trend. They are a drastic drop from 1.6 per cent recorded at the beginning of last year and a major dive from around the desirable 3 per cent mark recorded at the start of 2006. Page 7
Page 1 and 2: PROPERTY REVIEW A Quarterly Journal
Page 3 and 4: C o n t e n t s Rent hikes explaine
Page 5 and 6: A mortgage is often the biggest fin
Page 7: The preliminary estimated resident
Page 11 and 12: With these escalating house prices,
Page 13 and 14: Lower North Shore Median House Pric
Page 15 and 16: 2 Dind Street Milsons Point C u r r
Page 17 and 18: 2 Dind St, Milsons Point C u r r e
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2008 Spring

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