The rental market took a big hit during COVID.
Vacancy soared, particularly in the CBD and Docklands, where international students disappeared almost overnight.
Young people moved home with their parents. City folk fled to the countryside and seaside.
There were no overseas visitors, ex-pat professionals relocating, or gap-year Brits coming to backpack the east coast, pick oranges, meet a nice Melbourne girl/boy and rent a share house in St Kilda.
Rents went down. Days on market ballooned. Tenants were taking advantage of the pandemic (some rightly, some wrongly) to get rent reductions or move into a better or cheaper rental. The lockdowns made it difficult to lease properties.
But this has all changed.
Today, the rental market is stronger and tighter than pre-Covid.
Some stats from our own property management department:
The number of vacant properties is down to 34, the lowest level in many, many years. This number peaked at over 200 during 2020/21. This is from a rent roll of almost 2,000 properties.
Days on market are currently 17, compared to 34 in 2021.
There have been 128 rent increases this year, compared to 35 in 2021.
Family homes are getting snapped up after one inspection with multiple applicants.
So why is it so strong, competitive and tight out there in the leasing world?
Well, on the demand side, the internationals are coming back – particularly students and ex-pats returning home.
Workers are returning to the office, meaning CBD and inner city apartments and houses are again sought-after.
Families are wanting to upgrade to a bigger home but aren’t in the market to buy due to current market conditions – diminished borrowing capacity, low stock, or waiting for prices to drop (a risky strategy in my opinion).
On the supply side, there are several factors limiting the number of available rentals.
First and foremost, there are far fewer investors purchasing properties than before.
Back in 2015, investor loans equated to 46 percent of the total value of housing loan commitments. In 2021, this was down to just 28 percent (ABS). This is mainly due to stricter lending criteria for investors since 2014.
Higher interest rates and inflation, rising maintenance and holding costs are being passed on via increased rents.
Finally, some of the returning ex-pats are moving back into their homes that have been leased out for years, further tightening the family home market in Stonnington.
All these factors are compounding into an imbalanced rental market – more demand than supply – that is currently favouring landlords.
While this is not great news for tenants, it does create opportunities for investors.
It’s a great time to buy a small single front or older style apartment at a significant discount to last year, knowing it should rent out fairly easily.
Rents are on the rise and if you haven’t done so already, you should ensure you are reviewing whether your investment property is due an increase in weekly rent.
Our property managers have been very proactive on this front.
If you’re not happy with your current property manager and would like an introduction to Jellis Craig please let me know.