Theresa Worrell: Here is what’s going to happen to rental demand

Vacancy rates are set to rise sharply over coming months, with the rental market likely to be even harder hit than the new home market according to ANZ Bank’s May Housing Market Update.

ANZ explain that Money Parents the number of rental properties coming onto the market has increased sharply.

There are a number of factors leading to this according to ANZ including…

Short term rentals (Airbnb etc) are switching to longer term leases; potential vendors are withdrawing their properties for sale and listing them for rent; the overseas student market has dried up; and the sharp reduction in incomes is potentially driving younger renters back to live with their parents.

CoreLogic reports that rental listings have risen sharply, particularly in inner Melbourne (+36% in the month to 26 April) and Sydney (+34%).

As a result, advertised rents have started to drop in major cities.

Asking rents dropped 0.7% m/m in April, the largest monthly fall in the history of the series.

Alongside still-elevated levels of completions of new high-rise apartments, particularly in Sydney these factors suggest vacancy rates and residential rental yields will decline further over the next year or so.

Of course renters are far more likely to work in the industries hardest hit by the pandemic.

More than one third of renters were reported incidents of financial stress (including missing rent payments) before the crisis.

Rising unemployment and falling incomes are likely to increase the incidence of financial stress.

ANZ forecasted unemployment will peak at 9.5% this year

Rents are slipping

Social assistance is generally not enough to avoid financial stress.

Rental stress occurs when a household pays more than 30% of his income on rent.

Of the recipients of government rent assistance in 2019, households that included a person aged 24 years or under one more than 50% likely to be under rental stres

The high rate of rental stress for government recipients is concerning in the context of COVID-19, now that the number of people on Job keeper and jobss.

Source: ANZ Housing Market Update May 2020 which was provided for ANZ Institutional, Markets and Private Banking clients.
The information is general in nature and does not constitute personal financial product advice or take into account your objectives, financial situation or needs.

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