Good news for investors, bad news for tenants

Posted on 10/07/2008  

Rental vacancies in the inner suburbs of Sydney and Melbourne are now less than 1%. Melbourne's situation is in stark contrast to the situation just four years ago when the inner-city vacancy rate was 6.2%.

The Real Estate Institute of Victoria says the rental market is out of balance, with vacancy rates ranging from 0.6% in the inner city to 0.9% in Melbourne's middle suburbs.

REIV president Neil Laws says the market is generally regarded as in balance when the vacancy rate is around 3% (last seen in January 2005).

"A balanced rental market is one when people can generally find a home to rent and landlords get a reasonable rate of return on their investment," he says. "An unbalanced market is what we have now - queues for rental homes and significant rental increases."

According to the REIV, vacancy rates are 1% or lower except for the outer suburbs (1.2%).

The vacancy situation is worse in Sydney, where the Real Estate Institute of NSW reports that vacancy rates have plunged below 1% for the fourth time in less than seven months. REINSW data for May shows the vacancy rate in Sydney is 0.9% for the inner city and 0.8% for the middle and outer suburbs.

REINSW president Steve Martin says the punitive tax regime in NSW needs to be relaxed to encourage property investors back to the country's largest city. "The NSW Government seems blind to the mounting evidence that rental properties in Sydney will be virtually extinct if nothing is done to encourage new investment," he says.

The state of affairs in Sydney and Melbourne seems bizarre when one considers a report found elsewhere on this website that showed there are 830,000 vacant houses in Australia - that is, empty houses which are not in the rental pool.

Residential property analyst Michael Matusik adds that just under half the dwellings reported as unoccupied are in our capital cities. In Sydney, 122,000 dwellings were listed as vacant in the 2006 Census. The situation is not much different in Melbourne (120,000), while Perth (48,600), Brisbane (45,000) and Adelaide (33,000) also recorded substantial numbers of empty houses.

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.


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