The Melbourne Rental Market Crisis – The Perfect Storm
Rental Market Crisis
With strong winds from The Reserve Bank of Australia, tidal waves of Chinese students and immigration returning to our city, scorching heat from the rising rents and iceberg coldness of the recent changes to the Residential Tenancy Act, there is no wonder there is a storm brewing in the Melbourne rental market. Rental properties are in high demand as a rush of renters storm onto the market. The massive shortage of supply for long-term rental properties, is driving competition through the roof, just to get a roof over heads. Let’s see why the market is swirling around in madness:
The Reserve Bank of Australia
interest rate rises are pushing home owners to the breaking point, and it’s only going to get worse. Those who locked in their interest rates at the record low rate of 0.1 per cent, will be entering a period of needing to refinance, consider selling or paying the variable rate that has made nine rises since May 2022 culminating in over $1100 extra a month on a $600,000 loan.
If they need to sell, more likely or not, they are choosing to rent, to wait and see if they can purchase something similar for less, as the media talks up the decline of the housing market.
Chinese Government Policy Shift
Around the time of the Chinese New Year celebrations in January 2023, the Chinese government told their students that their online university degree will no longer be honoured as a qualification, and that they needed to complete their course face-to-face.
This created a surge of new enquiry from overseas students wanting accommodation in Melbourne and other university cities around Australia. In November 2022, there were 62,000 Chinese students enrolled in Australian universities that were not in Australia, with 3500 flown in in January.
With such an abrupt policy shift, it has made it a logistical nightmare for visa processors, universities and our accommodation industries to be able to house so many at once.
We will find, that many students won’t be able to process their visas in time for the March Semester One intake, and will need to defer to the mid-year intact, meaning that again, the pressure will be on in the rental market come mid-year.
Rising rents are also surging into a sector of the unknown. Melbourne is still the most affordable capital city to rent, because we have kept our rental prices low for too long.
Some landlords are getting $100-$200 a week more than they were with a previous tenant, as competition is high. Most open for inspections are seeing 20-30 prospective tenants jostling for a property.
Most have applications before the first open for inspection. Low-income earners are at a loss to be able to find accommodation because the maximum Centrelink rental assistance is a mere $75.80 a week for a single, which doesn’t even cover 20 per cent of the average weekly rent in Melbourne. If you are a couple with 3 or more children, you receive $100.66 per week, which doesn’t go far.
Short-term rental market
Thanks to Covid-19 that brought on a gluttony of long-term vacancies making normal investors, Airbnb investors, it’s hard for some of these investors to go back to long-term renting.
They know that they will need to go back to negative gearing with a long-term rental, rather than positive gearing with a short-term stay. Short term rentals also remove themselves from the Residential Tenancy Act obligations.
Our Rental Director, Marcel Dybner, was recently interviewed for the Herald-Sun and com.au arguing that the over-supply of short-term rentals is pushing up rental prices and reducing occupancy rates. This time last year, Besser and Co had 140 vacant properties, now we have under 30, with most having unprocessed applications ready to lease.
“Unfortunately, we are having to turn away a large number of really good applicants because we just don’t have enough properties available for them,” he said.
The Residential Tenancy Act of 2021 has also brought in its own problems. Many landlords got out of the rental market because they didn’t want to take on the added responsibilities and costs associated with their properties to get them compliant under the new act.
Staggering some of the rules, including block out window furnishings on all living room and bedroom windows that came in in March 2022, and now safety switches and energy-efficient heating by March 2023, some landlords would rather leave their properties vacant or sell them, rather than pay the costs associated to comply to these new rules.
Properties that were destined for the bulldozer used to get one last chance of turning a buck with a 12-month lease to a family wanting some cheap space while their own home was being built, or a group of tradie mates getting a roof over their heads where they didn’t have to worry about damaging the property because they could fix it themselves.
Developers don’t see the value in complying to the act temporarily. If it cost them $20,000 to get the house ‘rent-ready’ for a 12-month lease, they might as well leave it sit vacant.
Some investors are becoming inventive with their investment properties and helping the onslaught of individuals seeking rental properties by converting larger homes into quality rooming houses, getting anything from $250-$600 per week for a fully furnished room with all utilities and maintenance paid.
This alleviates the issue of single occupants occupying 3-4 bedroom homes, instead of a whole family who need one.
The reality is, there is a moral storm and a financial storm playing here – the social requirements needed to keep our people sheltered, and a financial storm of landlords with reduced affordability with their investment properties to house their renters.
If a landlord cannot make their mortgage repayments, their renter is at risk of losing their home. The renter needs to pay more for their rental property, putting less food on their table, and the their lifestyle snowballs.
Marcel has asked for investors to make the transition back to long-term renting to take advantage of the higher rental prices.
He has faith that investors will return to the long-term rental space, noting some have already started to transition back now the holiday season is over.
“We’ve had a lot of clients come back to us after trying Airbnb because the long term rental market is proving to offer better returns.”
Who knows when the sun will shine again where stability is there for both renters and rental provides alike. But if we take this action, transitioning short-term rentals into long-term rentals, calmer waters will lie ahead.
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