Australian renters received some positive news with rent growth slowing in June and the rental vacancy rate rising for four consecutive months.
“Australia’s rental vacancy rate has now fallen for four consecutive months, rising from a record low of 1.09 per cent in February to 1.42 per cent in June,” PropTrack reported.
Senior economist Anne Flaherty.
Separate data from other real estate companies indicated a decline in rent growth alongside rising vacancy rates.
The softening of rent growth comes amid easing net outmigration, which peaked in the third quarter of 2023 at a record annual rate of 564,500.
This slowdown in net outmigration is having the greatest impact on the housing markets in the three largest capital cities, which are recording sharper slowdowns in rent growth.
Rents also appear to have reached the ceiling of affordability after rising about 40 percent since the start of the pandemic.
The PropTrack report on rental affordability found that “rent affordability in Australia is at its worst level on record”, with households with an average income of $111,000 only able to afford to rent the smallest share of properties since 2008 when records began.
Unlike mortgages, rents cannot be leveraged. This means that rent growth is closely tied to household incomes, which limits the potential for them to increase.
The rental situation is still precarious.
Despite moderate rents and high vacancy rates in recent months, the situation facing tenants remains precarious.
According to PropTrack, the national vacancy rate remained 43 percent below pre-pandemic levels in June.
It all depends on supply and demand.
The latest data from the Australian Bureau of Statistics on housing approvals showed that just 13,500 homes were approved for construction in May, on trend.
This level of approvals is about 6,500 (32.5%) below the monthly rate of 20,000 approvals needed to meet the federal government’s goal of building 1.2 million homes over five years.
Annual approval rates were no better, with just 163,800 homes approved in the year to May, some 76,200 (32%) short of Labour’s target of 240,000 homes.
It is important to note that the Albanian government’s goal of building 240,000 houses annually has never been achieved.
The current record level of housebuilding over a 12-month period was 223,600 in 2017, 7 per cent below Labour’s target of 240,000 homes.
This level of construction was achieved when the official interest rate was only 1.5%, compared to 4.35% currently.
A record level of construction was also achieved in 2017 when construction costs were about 40 percent lower than they are now.
In 2017, the residential construction industry was also unable to compete for scarce labor and materials against major government infrastructure projects.
Finally, the latest insolvency data from the Australian Securities and Investments Commission shows that nearly 3,000 construction companies went bust in the 2023-24 financial year, indicating a decline in production capacity in the homebuilding sector.
In short, macroeconomic conditions are likely to remain unfavorable for housing construction, and construction rates are likely to remain low for the foreseeable future.
Meanwhile, continued strong population growth (migration) will continue to make life difficult for Australian renters by exacerbating the imbalance between supply and demand.
The following chart by AMP’s chief economist, Shane Oliver, shows that Australia’s structural housing shortage began when net overseas migration more than doubled in the mid-2000s:
This shortfall was almost eliminated during the pandemic when net out-migration briefly turned negative.
However, the housing shortage has worsened again after international borders reopened and nearly a million net migrants arrived over two calendar years.
Shane Oliver estimates that Australia’s structural housing shortage has grown to around 200,000 homes, which will continue to worsen as the population increases through net overseas migration.
Growing faster than new housing can be provided.
However, Oliver stressed that his estimates of the shortage were conservative.
“If the decline in the average number of people per household that we have seen over the past few years continues, the accumulated deficit could reach about 300,000 homes,” Oliver wrote.
in June.
“This would be much higher than where we were before the housing boom began in 2015,” he added. “It looks like the housing deficit is going to get worse before it gets worse.”
better”
Reduce immigration or the rental crisis will become permanent
The truth is that the only real solution to Australia’s housing shortage and rental crisis is for the federal government to reduce net overseas migration.
To fill the accumulated housing shortage, net out-migration must be reduced.
Lower level of state capacity to build housing and infrastructure.
However, the Generations 2023 report forecasts net overseas migration to be 235,000 people a year forever, swelling the country’s population to 40.5 million in just 39 years – the equivalent of adding another Sydney, Melbourne and Brisbane to the current population of 27 million.
This extreme migration will ensure that Australia remains in a state of permanent housing shortage, putting continued upward pressure on rents.
Leith van Onselen is the co-founder of MacroBusiness.com.au and Chief Economist at
MB Fund and MB Super Fund. Leith previously worked at the Australian Treasury,
Victorian Treasury and Goldman Sachs.
