Even with a historical fall in house prices, rents are tipped to rise by as much as 10 per cent. Will they ever go down? – Michmutters

Even with a historical fall in house prices, rents are tipped to rise by as much as 10 per cent. Will they ever go down?

With news that house prices are falling sharply in several capital cities, millions of renters may be looking forward to paying the landlord a bit less.

CoreLogic data released this week shows house prices in Australia are dropping at their fastest pace since the global financial crisis.

The median price in Sydney saw the sharpest value falls in almost 40 years, while values ​​in Melbourne, Hobart, Brisbane and regional Australia also dropped last month.

So rents should fall too, right?

Wrong. For most of the 2.4 million households renting from private landlords, rents will go up at a historically rapid clip over the next year.

Here’s why.

Prices go down, but rents keep going up

Rents have jumped about 2.8 per cent in the past quarter, and are expected to rise further still, said CoreLogic’s research director Tim Lawless.

“We’ve already seen rents up 9.8 per cent over 12 months to July,” he said.

“By this time next year I wouldn’t be surprised if there’s been a similar increase of around 10 per cent.”

The chart below shows the relationship between dwelling (houses and apartment) values ​​and weekly rents from 2010 to 2022.

As you can see, for most of the past decade, rents have trudged upwards while housing values ​​have fluctuated more wildly.

Basically, there’s no short-term relationship between the change in house prices and the amount tents pay their landlords.

Since August 2020, the fairly flat and predictable trajectory of rental payment increases has taken a sharp upwards turn.

In fact, the increase has been so sharp that Mr Lawless expects we’re approaching a “ceiling” on what renters are “able to pay”.

“Rental affordability is already challenging, and it’s going to become worse,” he said.

“I think a time will come when renters can’t fathom higher rents.”

Space to play or pause, M to mute, left and right arrows to seek, up and down arrows for volume.

Play Video.  Duration: 1 minute 59 seconds

House prices decline at fastest rate since GFC as building costs climb

Interest rates, returning students and COVID getaways for the wealthy

The reason rental payments will increase as house prices fall is due to a combination of factors, from rising interest rates, returning international students, and housing market changes wrought by COVID.

Higher interest rates means larger mortgage payments, which landlords are simply handballing to their tenants.

The return of international students with the opening of Australia’s borders will increase demand for rental accommodation.

A bird's eye view of a leafy suburb full of houses.
Since the 1990s, house prices have risen from 2.5 times annual household income, to over six times today.(Supplied: ACT Environment, Planning and Sustainable Development Directorate)

The resumption of tourism will also have an impact, said Chris Martin, a researcher at UNSW’s City Futures Research Centre.

“There’s probably been properties that have moved out of the rental sector to Airbnb and the tourism sector,” he said.

The pandemic has also seen more people with higher incomes owning a holiday home that they do not rent out, he said.

“If that happens often enough that would affect rental supply and could make rents even more expensive for people,” he said.


Leave a Reply

Your email address will not be published. Required fields are marked *