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Rent Stress Increases

The number of Australian families in rent stress is set to soar according to the Housing Industry Association. Research undertaken by the University of Canberra’s National Centre for Social and Economic Modelling (NATSEM) and HIA indicates that over the next three years, the number of private renting households faced with having to commit 30 per cent of their income to rent could increase by 230,000 to about three quarters of a million households.

The problem is a combination of increased house and apartment prices and reduced vacancy rates. Following the collapse in share prices in 2001-03 investors headed for property investment rather than shares. Debt was cheap and upsurge in higher net worth migrants put immense demand on existing stocks of housing. Now we have Gen X'ers finally having babies, the cheap option of cohabiting with parents is not socially attractive. But with house prices at 8 to 10 times annual average wages, purchasing is not an option for most. Whilst the new investors in rental property in the boom years of 2002-05 might have not worried about 2% yield on their purchase, they now have pricing power with vacancies low and also need to cover higher debt cost.

The RBA reported in February that conditions in residential rental markets had tightened, with the national vacancy rate around its lowest level since the early 1980s (see recently added Miscellaneous Chart in Research Centre). The low vacancy rates are contributing to growth in rents and should boost dwelling construction over the medium term. Over the year to the 2006 December quarter, the CPI measure of nationwide rents increased by 3.7 per cent, its fastest pace of growth since 1991. However, the RBA noted that information on new rental contracts suggests significantly larger rent increases, which are yet to pass through into the broader ABS measure for the total rental stock.

Posted Sunday, 22 July 2007

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