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Apartment Market - Act 2

The apartment market – Act 2

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When analysing the apartment market, it feels like we are at intermission of a murder mystery in the theatre.

Act 1 was a roller coaster. During intermission with choc top in hand, thumbing the program, we have got to know the main players. But how will it play out? Will there be new players? Will it turn to turmoil, tragedy or triumph.

Act 1

The first act was whirlwind of ups and downs with plenty of heroes and villains depending on your perspective. Here are the main players so far.

CovidThe masked villain who caused turmoil for several years, (including sharp rent decline) died suspiciously in scene 3.
Interest ratesWas in every scene. Grew and loomed large attracting unanimous pantomime style booing.
Rising rentsHailed a hero by owners, and a villain by renters. But was only cleaning up Covid’s damage.
Cost of livingEveryone loves to hate this role who robs from both the rich and the poor. (More booing).
ImmigrationBoosting the economy but adding additional pressure on the tightening rental market.
Build-to-rentHas had a small role so far but will be on stage a lot more in Act 2
Gov’t controlsIs yet to unmask themselves. Could they be faster development approvals, rent controls, or social housing initiatives. Maybe this actor has many faces.
Building costsRapidly rose and prevented new apartments being delivered to meet the housing need.
ExtrasA strong support crew including inflation, tight employment market, Ukraine war, work from home, and pessimistic consumer sentiment.

Act 2

Choc top finished, it is time to take our seats. As the lights dim, we await to see how it will play out.

Speaking to the backstage experts this is what I am hearing. (Backstage source listed below)

While Covid is dead, the legacy and trail of turmoil created is still being felt in the apartment market.

Rising interest rates takes the hint and settles down a bit. This assumes the employment market and inflation both ease.

Immigrationcost of livingbuilding costs and rising rents all dominate the apartment market and feed off each other. Each are here for some time and will continue to impact the apartment market for some time.

Apartment capital values are likely to rise over the next few years as hopeful renters start to bubble over to become buyers in the search for a home. (Watch for a cameo from the bank of Mum and Dad). Especially as the cost of rent vs mortgage costs will be similar.

Build-to-rent is still in wardrobe and unlikely to have an impact for a few years, with many large projects working through planning / funding / development phase. Even then, the predicted volume of rental apartments delivered are still well below demand and most are targeting the upper end of the market.

Summertime is normally busy in the apartment market. Apartment rents and values tick up during this time. This summer will be no different as the tail wind of apartment demand push them along.

Sitting quietly stage left is Government intervention, ready to make a dramatic entrance.

Both The Sunday Age and the Herald Sun this week, wrote about the potential for the Andrew’s Government to introduce measures aimed at facilitating more development and assisting renters. This includes taking planning controls in “high rise precincts” away from councils and limiting the frequency and amount of rent increases. Additionally, the state government has previously hinted at making announcements about social housing initiatives. These announcements could be a twist in tale.

We will all have to watch the show to find out exactly what happens but be prepared for continued rising rents as new apartment supply is still learning their lines.

Feel free to share your view on how the market will play out.

“Chookas” 🎭

Back stage sources – Charter Keck Cramer and Core logic

 

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