People scrambling for rental accommodation and buckling under the prices being achieved, were disappointed with the decision this week to leave official interest rates where they are. However, it will take much more than a percentage point drop to stimulate enough activity to affect the price of rental accommodation. http://www.focuspropertymanagement.com.au

1. Renters Looking for Relief from High Rental Prices
With interest rates dropping and the real estate industry starting to show some signs of life, this week’s
decision by the Reserve Bank not to follow through with another drop, while expected by most in
financial circles, was disappointing news for other sectors of the economy. It will be another three
months before the Board meets again, and for industry sectors struggling to keep their businesses
solvent, this will be a very long time. For people looking for residential property to rent, the hope that
lower interest rates would mean that rent prices would also start to fall is unfortunately not founded in
economic theory.
All economic activity moves in cycles, and being able to predict both the peak and the trough of the next
cycle separates the smart investors from the punters, with the first group seemingly able to increase
their wealth regardless of the state of the economy, and the latter not able to take a trick! Having the
courage to buy when everyone else is selling in a panic, then offloading when others are waiting to get
that little bit more profit is what separates the winners from the losers. With house rents rising by 7%
over the past year, and unit rental prices by 9%, conditions are difficult for renters, and the lowering of
interest rates is having no impact on these prices.
Some property management agencies are publishing vacancy rates of just over 1%, depending on the
location of their rental stock, with the average overall for Sydney being 1.6%. When the vacancy rate is
lower than 3%, this indicates a very strong demand for rental accommodation. It is this demand, rather
than interest rate movements, that is driving up rental prices. This is a classic economic supply and
demand scenario where the commodity in short supply i.e. good rental accommodation, is being
pursued by renters prepared to pay a higher price to get what they want. As long as there are people in
the rental market with the capacity to pay these prices, rents will either continue to rise or at the very
least, remain static.
There are encouraging signs that property sales are beginning to recover in respect of properties priced
around the $500,000 mark. If a significant proportion of these properties were placed on the rental
market with property management Randwick agencies, it may soak up some of the demand, but it’s
hard to see that this would make much difference to rental prices. It would take a significant flood of
new rental properties to hit the market for rental prices to fall significantly.
In the short-term, not a lot will change, but the long-term solution is for the housing market to recover
and generate a surge of new building activity. This will flow through to the rental accommodation
market and increase the supply of rental properties so renters don’t have to compete so fiercely for
somewhere to live.
http://www.focuspropertymanagement.com.au