Wood Property

Will rent keep rising?

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How far and for how long will rents rise?

The rental market was tipped to be red hot in 2023. January has been frenetic with queues of people at rental inspections. Existing renters are seeing increases of anywhere from $20 -$90 per week. Unsolicited offers above asking rents are also occurring.

The press is awash of stories of rental stress and rising rents. Most of the quoted statistics use the increase over the last 12 months which doesn’t fully reflect the full story. Looking over the last 3 years, rents dropped (esp for apartments) in ’20 – ‘21 and then rose through 2022 and continue to climb. If you take a 3-year view, rents haven’t changed that much but they will now start to push above prior levels.

Renters are facing a punishing rise in living expenses. Some perhaps became use to the lower rental market so the sharp rebound can be a shock. Owners are battling rising interest rates and higher compliance costs. Both renters and owners have their cross to bear and it appears both living expenses and interest rates have a little further to go so the game is not over yet.

To add fuel to the fire for renters, China made the surprise ruling on Saturday to ban all university students from studying online with an overseas university. Given the decision is just weeks before courses start, a reported 40,000 students are now madly packing their white runners and puffer jackets and booking flights to Australia before Uni starts. For many of them, their biggest issue is finding somewhere to live. Australia sits in second place (behind US but just ahead of Japan and UK) on China’s list of the most popular destinations for overseas university studies. This decision is also a major boon for Melbourne’s CBD generally.

So how will this play out in 2023?

As I highlighted in April 2022, the supply of new apartments is at a relative stand still and not much has changed. Given the time lag for new construction, meaningful new supply is years away. Unfortunately for renters there is therefore more pain to come. Renters will continue to see queues at inspections and rising rents. The same (but inverse) drivers of supply and demand that caused the free fall in apartment rents during covid has done a very aggressive full U turn. Rents typically stabilise though Melbourne’s winter months so it will be interesting if that happens in 2023.

Every action has reaction. Watch for investors entering the market to cash in on rising rents. Given the modified rental rules, investors are likely to buy the more modern or renovated apartments that meets all the compliance issues and tend to retain renters longer.

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