Is the rental crisis a crisis?

Posted by Helen Matsoukas

‘Crisis’ – A time of intense difficulty or danger. A time when a difficult or important decision must be made.

Like most things, the word ‘crisis’ originated from the Greek word ‘krisis’ – meaning ‘decision’.

Easily arguable that every single one of us has endured our own level of ‘intense difficulty/decision-making’ over the past few years, but would I agree with the constant media vomit that we are experiencing a ‘rental crisis? Not in the way they intend it.

For me, a time of crisis or intense difficulty was exactly this day one year ago – when Melbourne was put in lockdown 6 of 6. This was a lockdown that was supposed to be for seven days, turning into 77and bringing our total to 263 days of lockdown and crowning Melbourne the most lockdown city in the world. On the plus side, though, lettuce was only $1.29!

What we’re experiencing right now is a rental swing. In every city across our nation, rents have swung back to either where they were pre-pandemic or above. Why? Because simply, demand outweighs supply.

A wise woman once said (in a Blue Wealth blog written by me back in March 2022), ‘I’m predicting record high increases in market rent where the rental swing shatters the glass ceiling!!’ – hello, glass ceiling!

This really wasn’t a surprise, nor was it difficult to predict. The apartment supply pipeline started to decline well before COVID-19 cursed us with its presence. The slowdown in international and domestic investor demand made it almost impossible for developers to secure pre-sales and the looming Residential Tenancy Reforms (now legislated in Victoria and NSW) spooked long-term investors into getting out of the investor market entirely, which they did in the market boom of 2021.

COVID -19 was no doubt an interruption to a lot of things, and the vacancy rate was one of them. As supply grew on the back of lockdowns, job losses, and the international student and visa worker lockout, we’ve quickly forgotten the toll it took on both Sydney and Melbourne’s vacancy rates. Both key cities peaked at 4% and 4.7% during the heat of the pandemic; 57,000 dwellings sat vacant in one month.

Once the lockdowns lifted and borders re-opened, it was only a matter of time before we saw the positive flow-on to the rental market.

We need to remember; that the media’s sole existence is to sell stories. “If it bleeds, it leads,” right? Well, media headlines are quick to highlight countless stories of greedy, opportunistic investors putting extreme financial pressure on renters (tenants) by increasing rents by 20-34 percent! Calling this the ‘rental crisis’ is a load of rubbish! Anyone experiencing a 20-34 percent rental increase is purely off the back of heavily reduced rents during COVID.

With over 57,000 vacant dwellings and minimal to no government assistance, investors were left with no choice but to tank rents by the hundreds just to keep their existing tenants or entice a new one. Natasha Ankus, our own GM, is one of many who went through this very thing. Pre-COVID, Natasha was renting her North Fitzroy apartment for $550 per week. During the pandemic, reduced her rent to $450 per week to keep her tenant. As of a few weeks ago, the rent has been corrected, and we are back at the market rent of $560. The swing back for Natasha was 24%. The rent increase, however, was 2%.

One of the things I love about my job is helping our clients work through the challenges of being an investor and supporting them as they weather the storm cycles. We are now at a point in time where the lack of supply has driven the rental market correction, and all investors need to take action and ensure their Property Managers are implementing these increases as soon as they can – especially when holding costs too have increased.

The recent legislative changes, particularly in Victoria and New South Wales, saw new rules around rent increases. Below are the current guidelines around how often you can increase your rent and how much notice you need to provide your renter.

Victoria – Once every 12 months – 60-day notice period
New South Wales – Once every 12 months – 60-day notice period
Queensland – Once every six months – 2 months notice period
South Australia – Once every 12 months (if the tenancy started after March 2014) – 60-day notice period or Once every six months (if the tenancy started before March 2014)
Western Australia – Once every six months – 60-day notice period
ACT – Once every 12 months – 8 weeks’ notice
NT – Once every six months – 30-day notice

It’s really important to note that whilst almost all rental markets are currently amid the correction, some investors may still be a few months away from feeling the relief – especially in Melbourne. Remember, 12 months ago to the day Melbourne went back into lockdown for another 77 days. Vacancy rates were still high, and borders were still closed. Investors were still compromising on rents to keep some form of rental income flowing.

Decisions made then mean renters are still under current fixed-term agreements today. If you have a good Property Manager that knows the market and is doing their job, then discussion around where the rent is heading should already be in place. If your Property Manager hasn’t been in contact with you to discuss any form of increase, we need to talk now!

The rebound to the rental market will continue over the coming months, and then rents will begin to increase as more and more medium, and long-term international arrivals ramp up. In a recent article published by Realestate.com.au, international rental searches have spiked substantially, meaning migrant workers and students have their sights set on moving back to Sydney and Melbourne. Sydney and Melbourne have always led the way by housing 70% of migrants and foreign students, but recent studies are showing that Melbourne, in particular, is top of the destination list with 27% of relocation inquiries between January and June this year.

With the slow down in apartment supply and now the rapid rising in construction costs, further pressure on rents is inevitable. This isn’t great news for renters but definitely welcoming news for investors. In particular, anyone around the Blue Wealth circle.

Roy Azzi, our Head of Property Investment, isn’t just a pretty face. Wheels were set in motion months and months ago to secure a solid pipeline of Melbourne property that was going to be delivered and completed at the most opportune time. I’ve never been more excited about our pipeline than I am now. Not only because it’s in the city, I love but because it’s in a world-class city. A cosmopolitan mecca that everyone will want to live in. Just wait and see.

Posted by Helen Matsoukas, on 9th Aug 2022