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Rising rents & interest rates will end WFH.

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The shortage of housing, rising rents and the sharp increase in interest rates could reduce working from home (WFH) and force people back to the office or workplace. Here is why.

Housing shortage.

This week the National Housing Finance and Investment Corporation (NHFIC) released is third “State of the Nation’s Housing 22-23” research report. You can read through all the detail but essentially the report states demand for housing will outstrip supply by 106,300 dwellings (cumulative) over the 5 years to 2027. That is a big housing shortage and begs the question, where are these families going to live?

That volume of housing shortage will put enormous pressure on the housing market and something has to give. At the same time, homeowners are battling increased interest rates and rising costs of living.

Can you see what is cooking here? Here are the ingredients in the pot.

  • High housing demand
  • Record high rents.
  • Rising interest rates
  • Slow supply of new dwellings
  • High cost of new dwellings
  • A struggling building sector

NHFIC report released.

The NHFIC report states.

“The premium for space at home, with ongoing work from home arrangements following the pandemic has contributed to reducing average household size. This has been a factor in sharply falling vacancy rates. Analysis shows that decreasing household size since mid-2021 led to an additional 341,500 households forming, or around 103,000 in net terms since the beginning of COVID-19.”

We now need that space back. We need the household size to grow again.

Average household size to rise.

Realistically however, people are not going to rent out a spare room as a charitable gesture to help the national housing shortage. But in the face of rising costs, we will all look for ways to save money or better utilise extra space to pay the bills. People will also support their children or extended family or rent a room to make some extra cash.

That extra bedroom / WFH study has served many people well through covid and beyond but it has now become hot property.

Housing sizes will naturally increase due to financial pressures. With more people living in each home, going into work each day will become more attractive. It frees up living space during the day and gives us some of our own time and space back. Workplaces also know they need to play their role and make coming to work more inviting.

Employment market set to soften.

On top of this Deloitte Access Economics are forecasting a slowdown in the employment market through 2023 giving employers a greater say in workplace norms. As jobs become harder to find, people will be more inclined to turn up to the office.

Economically people will right size to beat rising rents. Someone (or a couple) renting a two-bedroom apartment and using one of them as a study will move to a one-bedroom apartment
(#cheaper), and work in the office. That two-bedroom apartment will then be rented to two or three people who will also go to their work place each day.

We need a sustainable solution.

A more sustainable solution is needed which is more homes. NHFIC is to become Housing Australia with the responsibility to facilitate 40,000 social and affordable homes over 5 years from 2024. This is an important contribution to the housing shortage.

Enabling the private sector to meet the housing demand is obviously the best solution. They need the appropriate financial incentives in place and a more certain and faster development approval process.

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