Author: Michael Bleby of AFR
Australia will face a rental affordability crisis as domestic and international borders reopen, with Brisbane hardest hit as insufficient new supply pushes rents up more than 5 per cent a year over the next five years.
The opening up of domestic borders to interstate travel, national borders to international travel and the likely return of immigrants and foreign students will put pressure on all of Australia’s cities, commercial real estate agency JLL’s Q3 2021 Apartment Market Overview shows.
But the 7 per cent decline in the national inner-city apartment pipeline in the September quarter from just three months earlier – the latest piece in a picture of decline that has been under way for four years – makes clear the significance of the worsening supply situation as borders reopen.
“We’ve had a lot [of focus] on house price affordability, but rental affordability is going to become a really big issue,” JLL’s senior director of Australia research, Leigh Warner, told The Australian Financial Review.
“People are going to be in housing distress. There’s no question about it over the next few years.”
The latest quarterly report shows that the apartment pipeline to 2025 – of apartments complete so far this year, under construction, in marketing, with plans approved or submitted for approval – fell to 62,655 across the mainland capital cities from 67,154 in the June quarter.
Sydney’s total accounted for the biggest decline while Melbourne level-pegged. But Brisbane, despite a 13 per cent quarter-on-quarter increase, would face the greatest pressure as a consequence of the influx it was experiencing of people from other states, Mr Warner said.
There is going to be a more clear crunch point in that demand-supply balance in Brisbane.
— Leigh Warner, JLL
Queensland’s population rose 0.9 per cent, by 43,900 people, in the March quarter, well ahead of the national (and NSW) 0.1 per cent increase and Victoria’s 0.6 per cent contraction.
“With strong interstate migration as well, at the moment, and borders opening, there is going to be a more clear crunch point in that demand-supply balance in Brisbane,” he said.
“Over the long term, rent should grow slightly more than inflation, by around wage growth. Over a five-year period, I think we will achieve in excess of 5 per cent per annum.”
Attached dwelling approvals are increasing. The latest official figures for September posted a second month of double-digit growth in approvals of apartments, townhouses and semi-detached homes, even as numbers for standalone homes weakened further.
But with the decline of overseas and local investors, the development industry that has focused its attention since 2017 on the market of smaller projects with larger dwellings for mostly downsizing owner-occupiers was not in a position to scale up rapidly, Mr Warner said.
“Most have focused on small, boutique quality product aimed at downsizers and that premium market, so we haven’t had the large chunks of supply coming through,” he said.
For many private landlords, a tighter rental market that reverses recent high vacancy rates points to higher rents and income. But the extreme imbalance would bring risks, Mr Warner said.
“Obviously some people will be cheering rental growth, but I feel like we’re heading into a period over the next couple of years where rental affordability is going to become a real issue nationally,” he said.
“Rents are going up enormously and there are social consequences of that.”
The challenge for policymakers would be to boost supply in a constant way, without triggering the large cyclical swings typically caused by stimulus programs, he said.
Higher rents will encourage more build-to-rent projects as it would make them more financially attractive to investors, despite the federal government’s imposition of a 30 per cent withholding tax on the emerging asset class that is not applied to other sectors such as student accommodation or hotel property.
To alleviate the rental affordability crisis for lower-income Australians, governments would need to make sure build-to-rent projects included a range of housing options, Mr Warner said.
“They’re going to need to keep encouraging putting more affordable and even social housing within BTR,” he said.
Credits to Author: Michael Bleby of AFR