What Does the Future of Renting in Australia Look Like?
2020 was not a good year for the housing market in general. Real estate prices came crashing down because of a lack of demand as people went into savings mode to bulk up their finances. 2021 however has started on a slightly different note. The vaccines are being rolled out and there is hope that the global economy may recover. The shadow of recession will stay for quite some time but we are seeing recovery at least in the housing sector.
Statistics from the Australian housing market show that November saw an increase in demand for real estate. There are many reasons for this positive trend in the Australian real estate market.
Firstly the purchasing power of buyers has increased during the lockdown. People did not spend much and got access to their supers. In addition to this Australia along with many countries has got very low interest rates at the moment. Central banks all over the world right now have a policy to keep interest rates as low as possible, in order to promote the people to spend their savings, so that aggregate demand can stay hot.
Another reason is that there is a short supply of real estate in the Australian housing market, whereas there are a lot of people who want to buy and rent out properties. The covid strategy of Australian in general was very well planned and executed, which reduced the financial impact on the economy and the individuals. In addition to all this, there is a rising demand for real estate be it to buy property or rent out by first time buyers.
It can be seen in the graph above that housing prices in Australia were down in the negative zone for most of 2020 but as soon as the economy began to open up in November 2020, the prices shot back up again.
This recovery in prices was contrary to the pessimistic views of RBS and other experts of the industry. Many of these experts including RBS are now revising their forecasts for 2021 and beyond.
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Now the housing market of Australia is modelled after the housing market of the UK. Take London for instance, the property values in London are sky high because it is the hub of business and commerce. There is a lot of demand but very limited supply, which drives the prices of real estate and rent upwards. The same is true for commercial hubs in Australia like Sydney and Melbourne.
This graph shows how the values for housing have changed in various cities and regions of Australia. Western Australia and Melbourne are yet to recover, which shows that demand in these areas is not picking up. Why? It is because like the UK, there is now a trend in the commercial hubs of Australia for renters and homeowners to move to the less costly suburbs outside the big cities.
Renters in particular are finding this as a good strategy because moving away from big cities won’t affect them much because of work from home protocol. This move from the cities to the suburbs, is one reason why there is positive price movement in the suburbs because the suburbs too have a limited supply of real estate. As that supply begins to reduce, the prices there will start to go up.
The graph above shows the forecasted price movements for the capital cities. It can be seen that the forecast for 2021 for all of the cities is positive.
It must be remembered that it is not just the price of real estate that is rising but also the rents.
- House rents in capital cities rise by 1.1% since March last year
- Unit rents in capital cities fell by -5.4% in the same period
The main reason for the fall in unit rents have been the capital cities, which have seen an exodus of renters. Capital cities have been struck the hardest because they depend a lot on tourism. Virus and lockdowns have severely impacted tourism and thus the economy of the capitals and major cities for this reason has been severely impacted. Unemployment is also much higher in the major cities, for this exact reason.
So the housing and rent prices in the big cities depend a lot on the successful vaccination drive in Australia and the opening up of the international borders and resumption of tourism.
If we look at the situation of rents in the different regions for the month of January, then we can see that the northern territories have been the most expensive with $435 rent on a weekly basis, this is in spite of the change in rent. Tasmania, Queensland and Southern Australia have also seen a reduction in rents.
The rents are already picking up since the economy started opening up at the end of 2020, this recovery however will be dented by the recent snap lockdown in Victoria, as this shows that the danger of virus spread is still there and therefore this may hamper and delay the return of Australians abroad and the tourists, who drive the economy of the big cities.
However, the long term outlook for the housing and renting market in Australia is looking positive. The sector is all ready to bounce back and is only being hampered by the covid-19 related obstacles.
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