830,000 houses empty amid rental shortage: why is it so?

Posted on 24/06/2008  

Next time you read about 60 people competing to rent the same house, consider this - at last count there were 830,000 vacant houses in Australia. That's right - 10% of the total housing stock turned up in the Census identified as "unoccupied residential dwelling".

Residential property analyst Michael Matusik says he was so amazed by this statistic he quizzed the Australian Bureau of Statistics to verify the figures. Matusik's May 2008 Snapshot says that just under half the dwellings reported as unoccupied are in our capital cities (most of which are widely reported to be suffering from a shortage of rental accommodation).

In Sydney, where the rental vacancy rate is said to be below 1% in the inner city, 122,000 dwellings were listed as vacant in the 2006 Census. The situation is not much different in Melbourne (120,000), whilst Perth (48,651), Brisbane (44,939) and Adelaide (32,954) also recorded substantial numbers of empty houses.

So, as the late Julius Sumner Milner would say, why is it so?

First, a caveat. As with all stories involving interpretation of Census statistics, when it comes to measuring "unoccupied dwellings" at a specific point in time, there are many possible permutations. For example, the owners of a rental house might have taken it "off line" for a month while they carried out a renovation. Or, given that rental premises can have four or five changes of tenant in the course of a year, the home may have been "between tenants" when the Census collector called.


But that still leaves a lot of properties that are genuinely tenantless. There are several plausible explanations for this:

• Some large corporations and not-for-profit organisations maintain houses and apartments for use by staff and visitors which are not part of the rental pool.

• An indeterminate number of "unoccupied dwellings" are in the hands of mortgagees (in which case they would probably stay unoccupied until sold).

• There are several locations with a large number of holiday homes. Owners might choose to keep these homes out of the rental pool, preferring instead to spend their holidays there or give the keys to family and friends at various times of the year. The Gold Coast and Sunshine Coast alone reported 40,354 unoccupied dwellings - Cairns and Townsville together accounted for another 9,321 dwellings where junk mail piles up in the letter boxes.

• Every year about 1,200 vacant houses fall into the hands of the Public Trustee of NSW because of the death or disability of the owner. We note the State Trustee of Victoria's annual report says it sold 282 properties worth over $95 million last year. The State Trustee also manages a suite of rental properties - 320 at last count - so perhaps it depends how pro-active the trustee is in moving housing stock or at least getting a return from what might otherwise be vacant housing.

• Sometimes, owners just don't want a tenant. Matusik writes: "This is not surprising, given that capital gains make up about 75% of the total gain on a residential property, with rental gains contributing just 25%. For some, the potential hassles with tenants are not worth the effort." This could well change if/when there's a moderation in the impressive capital gains currently being enjoyed by property owners. Renters will no doubt rejoice if there are more properties to choose from further down the track.

Matusik observes the stock of vacant residential dwellings is equivalent to five years' supply! Even if some of these houses are only temporarily vacant, that still leaves a lot of houses with nobody in them. And even if only half the houses reported to be empty were made available to the rental market, it would greatly ease the rental supply situation.

Matusik argues that Prime Minister Kevin Rudd might consider incentives to persuade property owners to come into the country's rental pool. With Australia's housing market 30% under-supplied (and closer to 50% in NSW and Queensland), he might have a very good point.

ENDS

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