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Aug 31, 2023
10 Ways to Fix Rental Crisis
Earlier this week, I appeared before a Senate Inquiry on behalf of the real estate industry looking into renters’ rights. It is widely recognised that insufficient supply of housing is the main cause of rising rents. It’s a simply supply and demand equation; low supply plus high demand equals higher rents. Astonishingly, the main supplier of the rental homes - family investors – are ignored by governments and are actively vilified by the Greens. Policies that disincentivise the suppliers of rental homes, such as rent caps or rent freezes, end up diminishing the supply and rents continue to rise. It is baffling that the Greens continue to oppose the Housing Australia Future Fund legislation which aims to supply affordable housing, but reckon imposing a two-year rent freeze (which sees investors sell) would improve long-term rental affordability. Instead of playing politics, the Real Estate Institute of Australia has come up with a ten-point plan to help tenants: Coordinate State and Territory bond agencies to track data on tenancy numbers and tenures. Monitor rental pain points, particularly tenancies not professionally managed. Develop a cohesive national industry-government program of awareness materials for renters. Develop incentives for vacant properties and short stay rentals to bring them back to long-term rentals. Commit to long term stamp duty reform; and offer immediate stamp duty waivers for purchases of rental properties in areas of high need. Commission an immediate occupancy audit across Government owned and funded housing. Develop a feasibility study for re-purposing non-residential real estate into residential housing. Examine options for non-conventional rapid build homes in high areas of economic growth and housing need. Implement the National Cabinet target to build 1.2 million homes by 2030 and have performance mechanisms that hold governments and industry accountable to achieve this. Pass the Housing Australia Future Fund Bill. Meanwhile, you can contribute to the debate by making a submission to the Inquiry. Just search, “Worsening Rental Crisis” and go to the parliamentary page.
Aug 24, 2023
National Cabinet Discuss Potential Rent Freezing
National Cabinet met in Brisbane last week and, despite significant political pressure from the federal Greens, emphatically ruled out imposing a rent freeze and/or rental cap system in the states and territories. I note that the federal government has no jurisdiction to legislate changes to residential tenancy laws, that rests with the states and territories. However, it is the first time that a Prime Minister has worked with the states and territories in implementing a nationally coordination plan in the interests of renters’ rights. On the whole, the nine-point plan that popped out of the National Cabinet meeting strikes a fairly reasonable balance between the rights of tenants and the suppliers of their homes, investors. Importantly, the plan gives the states and territories relative autonomy to tweak their legislative framework to align with the plan but account for their unique markets. The language used in the plan provides a degree of flexibility. For example, the first point of the plan states, “Develop a nationally consistent policy to implement a requirement for genuine reasonable grounds for eviction, having consideration to the current actions of some jurisdictions.” This gives the states plenty of scope. For instance, in Victoria if a tenant wishes to renew a fixed-term lease, the landlord must agree to it unless they wish to move in themselves, sell the property or substantially renovate it. Whereas the WA government has just finalised their review of residential tenancy laws and sensibly retained ‘no-grounds’ completions at the end of a fixed term lease whereby the landlord is not obliged to renew a lease for an existing tenant. for every three rented houses sold, only one remains a rental. Other points in the plan cover the opportunity for tenants to appeal against retaliatory evictions, seek to outlaw rent bidding and protect tenants in situations of domestic or family violence, most of which are legal protections already in place across Australia. Point 3 in the plan seeks to limit rent increases to annually which seems fair enough and is law in most states already. Queensland and WA are the only two states yet to make this change. The remaining points cover limiting break-lease fees for fixed term leases (which will simply give rise to fewer fixed-term leases being offered), designing rental applications to protect renters’ personal information, the phasing in of minimum quality standards for rented homes and better regulation of short-stay accommodation. Now that we have a nationally agreed framework for regulating rental homes, the impact on supply of rental properties is yet to fully play out. Amongst the Greens’ hysterical demands for rent freezes / caps, investors have been busily selling out their assets at the rate of 3:1 – for every three rented houses sold, only one remains a rental. Mortgage costs over the past twelve months have risen at three-times the rate that rents have gone up. Land taxes in some states have doubled. Insurance premiums, council rates and strata levies have all risen too. So, despite this neat, nationally coordinated plan to look after tenants, a crucial piece is missing; who is going to provide all the houses that tenants call home?
Aug 10, 2023
Perth Property Leading National Capital Gain
By Hayden Groves Data house Core Logic’s latest housing price index figures reveal what many property commentators expected; that Perth property values now lead the nation in terms of capital gain over the past twelve months. Off the back of more moderate property value increases comparative to east coast cities during the property rush of early to mid-2020, Perth was better positioned to weather the storm of 12 successive interest rates rises in fifteen months and the resulting impact on property values. For the twelve months ending June 2023, Perth is the only capital city to record annual growth with dwelling values up 2.5 percent and moving 2.8 percent for the quarter. Somewhat remarkably, Sydney’s housing values increased an impressive 4.9 percent in the June quarter off a very high base, but have pulled back 8.0 percent from its peak prices in January 2022. Across the year Melbourne is off 5.7 percent, Brisbane backed off 8.2 percent and Hobart has declined the most by 12.7 percent. Overall, evidence is emerging that Australia’s property values are trending back towards a growth phase with almost every capital returning positive gains last month and quarter. Perth is well positioned for property price gains Property values are rising despite a high inflationary environment, higher interest rates and low business confidence off the back of increased immigration levels and low listing supply fuelling demand. Sales volumes have decreased across the year, down 20.3 percent nationally, with the three big east coast capitals’ transaction levels tracking below the national average. Perth’s property sales activity has only declined 3.2 percent last year, the lowest fall in the nation. The interplay between sales volumes, listing availability and property values provides useful insights into likely future market behaviour. Listing stock continues to trend downwards, dropping 13.2 percent from last year and 28.7 percent lower than the five-year average. Lack of housing supply is the key driver of property values in today’s market. In Perth, total listings are down a massive 30.3 percent compared to last year and new listings coming to market are off 18.7 percent. With such short listing supply, population gains driving demand and relative affordability, Perth is well positioned for property price gains in the short to medium term. Meanwhile, national rents look like they’ve peaked growing by 9.7 percent year-to-date, down from the twelve-month peak of 10.2 percent for the 2022 calendar year. REIWA reported an uptick in vacancy rates to 0.9 percent last month, some welcome relief for tenants looking for a home. I see the biggest challenge for the housing market being the rate investors are selling their property assets, homes that provide rental housing. The decade average of investor property sales is 25 percent of all property sales. This has risen sharply since January to sit at 32.7 percent. Anti-landlord sentiment fuelled by the Greens and others for political purposes and higher interest rates is seriously damaging rental supply.
Aug 3, 2023
Use a REIWA Property Manager
By Hayden Groves Property management is more about managing the tenancy than it is about managing the property. The property manager’s primary role is managing the tenancy agreement as expressed by the terms of a lease and regulated by the Residential Tenancies Act. The property manager can only inspect the property on four occasions per year on behalf of the owner, so it is important that the tenant understands that it is them as the occupant, that effectively manages the property itself. For tenancies longer than three months, the Residential Tenancies Act (the ‘Act’) applies automatically (whether there is a formal lease or not) and it is foolhardy not to utilise the services of a competent property manager for a property asset, particularly during times of short supply and high demand. There is great value in having a property manager act at ‘arm’s length’ Management fees are not exorbitant and are tax deductible. And for the sake of saving a relatively small portion of the rental income in management fees, the risks of self-management are significant. A sound working knowledge of ever evolving legislation is essential, as is the capacity to properly reference check a prospective tenant. But, perhaps most importantly, much of the risk and responsibility attached to the management process is borne by the managing agent, giving property owners someone to rely on if the tenancy goes wrong. Even thoroughly assessed tenancies go off the rails on occasion due to a change in circumstances of the occupants; job loss, relationship failure and health issues are common reasons. A professional, well trained local agent is equipped to deal with this challenging issues when they arise. Finding the right tenant can be tricky too. Prospective tenants almost exclusively rely on the internet to find themselves a property, so owners without access to the favoured websites will find it difficult to attract the right tenant in the first place. There is great value in having a property manager act at ‘arm’s length’. Many a self-managing landlord has fallen into the trap of sympathising with their defaulting tenant and allowing rent arrears to build up over time hoping that they’ll “make good”. Acting at arm’s length affords the property manager a compassionate ‘just business’ approach to rent payments and the lease agreement more broadly. This is particularly important in these times of rising rents and inflationary pressures. Self-management often works well and for extended periods, but when a tenancy goes wrong, it is costly and stressful and it has been my experience that with all things considered, it is not worth the risk.
Jul 14, 2023
New listings are down a nation-leading 30.3 percent
By Hayden Groves This week, REIWA reported that there are 2,395 houses, 1,461 units and 1,364 vacant lots listed for sale on reiwa.com. This meagre total of 5,220 properties is about 40 percent lower than the same week last year. Meanwhile, sales volumes remain relatively high at 880 last week, unchanged from the corresponding week in 2022. Five years ago, reiwa.com listings numbered 12,417 and there were 29,000 property transactions. Last year, there were 58,000 sales across land, units and houses. Unsurprisingly, this shortage of supply matched with stronger sales volumes leads to one thing – higher prices. The same thing is happening in the rental market. Rental stock hit record highs in January 2018 with 12,000 homes available for lease, last week there 2,123. Rents are rising as a result of constrained supply. The problem of low housing supply for either sale or rent is not confined to the WA market. According to the latest Core Logic data, national listings for dwellings is down 13.2 percent on last year and 28.7 percent below the five-year average. In Perth, total new listings are down a nation-leading 30.3 percent from last year, way below the 18.9 percent average decline. Rental prices are rising at a rapid rate, up 13.4 percent in Perth since last year. Median house rents in Perth have moved from $370 per week in July 2020 to $575 per week today. A decade of relatively flat weekly rents, rapidly rising interest rates (which have risen 35 percent in a year), cost of living pressures and higher migration intake fuelling demand are the core reasons for the current rent price increases. new listings are down a nation-leading 30.3 percent Investors remain cautious about buying in the current fiscal environment and many, faced with spiralling mortgage costs are opting to sell. With 70 percent of all rental homes in Australia owned by persons holding a single property other than their primary home, selling the rental property is often a sensible option is your home mortgage repayments are rising. Chatter about rent freezes, high stamp and land taxes, a wobbly national economy, tenancy risk and yet-to-be tamed inflation disincentivise private investment. The structural nature of our rental housing sector has for generations relied on family investors to supply the market and in the absence of an alternative – such as governments supply more housing – we need thriving investment in housing from ordinary Australians to supply the homes tenants need. Yet, some politicians, advocates and the media have lashed these ordinary investors as being ‘greedy’ or even labelled them ‘dodgy’. Sure, there are some unscrupulous landlords out there – in the tiny minority. But this modern, anti-aspirational rhetoric threatens the fundamental underpinnings of our rental system. The government is unable to supply the $3 trillion worth of rental stock in Australia anytime soon, if that is the aspiration of those looking to undermine private investment in residential property.
Jul 3, 2023
Data Gurus: Less Pain, More Gain
By Hayden Groves Data gurus Core Logic produce a quarterly report aptly named the Pain and Gain, providing insight into the profitability of property sales across Australia. The report assess each property sale from its previous selling price in order to determine if the property was sold on a positive or negative margin. It doesn’t take into account the holding (interest payable, land taxes, rates, etc.) or purchasing costs such as stamp duty. The losses or ‘pains’ could therefore be worse than reported. Looking at the figures, it’s unsurprising that when assessed over a ten year period, Perth’s property market has had its fair share of pain during that time. Since the market peak of 2014, the proportion of properties sold for profit steadily declined from 95 percent to near 50 percent by late 2019. Usefully, Core Logic splits the data into detached houses and units with Perth houses performing significantly better than units since 2013. For houses, the portion of profit-making sales on a rolling quarter basis back in 2013 through to early 2016 held steady at 95 percent. It steadily fell thereafter to reach 60 percent April 2019. The market must have been dire for 40 percent of all houses sold in mid 2019 selling for less than their previous sale price. The numbers are even bleaker for units for a period in mid-2020 where only 40 percent of units sold realised a profit. During this ‘peak-COVID’ period we had rental moratoriums, a great deal of uncertainty and a decade of zero growth. Investors fled the market in large numbers, with – as it turns out – 60 percent of them willing to take a loss on the investment in the process. Roll forward to now and unit sales still lag behind houses in terms of profit-making. Perth’s market is still in recovery across the unit sector with only 64 percent of sales profit-making, well below the national average. Comparatively, profit-making house sales represented 94 percent of all houses sold last quarter. The discrepancy here can be attributed to the natural inclination of larger households to sell less frequently coupled with units being more favoured by investors, making them a more liquid asset. For Fremantle, 17 percent of all sales in the March quarter sold for a median value loss of $51,500. Inversely, 83 percent of Fremantle sellers made a median gain of $171,500 across a hold period of 8.9 years when they sold in the March quarter. In Cockburn, the median loss was less at 13 percent at $40,000 with 87 percent of sellers making a tidy $130,000 median profit if holding the property for about 9 years. Overall, the trend for Perth property being sold at profit is upwards as property values continue to grow. Values are up 1.9 percent across April and May this year with the likelihood of further gains adding to the recovery in profit-making sales as the year progresses.
Jan 16, 2023
Perth Values Hold Firm
By Hayden Groves The latest numbers from property data gurus Core Logic revealed national housing values had fallen at their fastest rate on record, dropping by 8.4 percent since prices peaked in May last year. The cities most impacted are those that typically experienced the strongest gains in the ‘COVID’ years prior to the peak. Unsurprisingly, Sydney’s housing values have pulled back 12.1 percent over the past twelve months, Melbourne is off 8.1 percent and Hobart has declined 6.9 percent. It’s worth remembering national property values have risen 28.9 percent since government stimulus and emergency interest rate settings were introduced to counter COVID-related economic shocks. Adelaide is suddenly leading the capital city pack showing a 10.1 percent rise in house values in 2022. Darwin’s prices held positive at 4.3 percent growth and Perth moved forward 3.6 percent for the year. Perth’s property prices peaked in July 2022 and have only retreated 0.6 percent since then, the smallest fall across the nation. Perth property values have gained 25.9 percent since late 2019 with our regions still climbing after already having put on 31.5 percent. Looking more closely at the numbers, Perth is looking the most likely capital city to weather the current higher interest rate and inflationary environment best as 2023 unfolds. Last month, Perth was the only capital to post a positive price gain albeit a moderate 0.1 percent, but it does indicate that all other capitals are past their peak. With a median house value at $560,902, Perth remains the most affordable city compared to east coast capitals. Adelaide’s median price is $88,139 higher than Perth’s and it is still $112,431 more expensive to buy in Hobart than locally. As interest rates continue to climb, property values across eastern Australia are likely to continue their decline. However, the chances that they’ll give up their recent gains is highly unlikely. Population growth is tipped to expand as 2023 unfolds and most economists predict interest rates will stabilise in the back half of this year as inflation moderates. These factors, along with low unemployment rates and healthy consumer bank balances, will help most households cope with rising interest rate costs this year. As Australia’s most affordable state capital, Perth’s fundamentals are poised to deliver property value gains this year due to our more moderate response to the ‘COVID boom’, strong employment opportunities and population gains.
Dec 19, 2022
Perth Still Affordable
By Hayden Groves The Real Estate Institute of Australia’s latest Housing Affordability Report was released this week revealing housing affordability continued its decline for the September quarter across Australia. As expected, NSW and Victoria remain the least affordable places to buy property with an eye-watering 51.6 percent of a family’s income devoted to meeting the average loan repayment in NSW. In Victoria, 43.6 percent of their hard-earned goes to meeting mortgage commitments. The national average is 42.2 percent. Happily, Western Australia remains astonishingly affordable with 31.4 percent of our median weekly income of $2,379 covering the average loan of $467,910. In contrast, mortgage holders in NSW hold average loans of $743,586. WA’s housing affordability has barely moved in the last ten years falling a mere 0.1 percent. Average loan amounts across the nation have dipped 2.7 percent from the previous quarter, a clear response to rising interest rates. the hysteria around rental affordability is being exaggerated Both housing and rental affordability continued to deteriorate in the September quarter falling 3.8 percent. Annually, housing affordability across Australia has worsened by 7.6 percent and rental affordability is down 1.1 percent. Tasmania’s rental affordability remains the worst in the nation with Taswegians paying 30 percent of their income to rent, whilst in Western Australia tenants contribute 19.8 percent of their earnings to rent, the equal-lowest (along with Victoria) in the nation. Whilst property ownership affordability has rapidly declined over the past five years, national rental affordability has proven more stable, dropping a mere one percent in twenty years. Rental affordability has, in fact, improved over the past five years across the nation, up 0.6 percent. Based on these numbers it could be argued the hysteria around rental affordability is being exaggerated. Despite the relative stability of rental affordability over the past twenty years, the data reveals a step rise in median rents since 2020 moving from $425 per week to $508 per week in 24 months. The steepest increase has been felt in Queensland where rents have moved from $378 per week to $475 in two years. Back home, median house rents have moved from $350 per week to $450 per week over two years, encouraging first home buyers into home-ownership. 36.7 percent of all WA buyers in the September quarter were first-time buyers, the highest proportion in Australia. Investors should take note too as WA property continues to deliver the best rental yields in the nation at 3.9 percent. Despite these appealing yield numbers, the proportion of lending to households for dwelling investment in WA remains behind all east-coast states at 24.6 percent. WA continues to mount a clear argument for Australia’s most desirable destination when it comes to investing in property.