One of the great mysteries of real estate is the lack of strong rental growth in a land that allegedly has a chronic housing shortage crisis.
The latest rental report from Australian Property Monitors – which covers the eight capital cities – records falling rentals in some markets, zero growth in most and small increases in a few.
The only market to deliver rent rises consistent with the so-called dwelling shortages is the Darwin housing market.
Everywhere else in capital city Australia, it’s all about stagnation. This mirrors recent results with house and unit prices.
How can that be in an under-supplied market?
Here’s the answer: the shortage claims constitute the number-one furphy in Australian real estate.
Economics 101 tells us that where there’s strong demand for a product which is in short supply, prices rise. If prices are not rising, then we can conclude that demand is weak and/or that there is plenty of supply. Or that the normal laws no longer apply.
There are a few places around Australia that do have genuine shortages of dwellings. They’re not the capital cities – they’re in the regions, primarily those where life is all about the resources sector.
Gladstone has a genuine shortage and rents are increasing is significant increments. It’s become a major issue in the Queensland industrial city, particularly for households that aren’t earning the big money in the resources-related projects.
Mining towns in Queensland’s Bowen Basin like Moranbah have had rents rising so high that typical rental yields have topped 15% – a number I haven’t seen in my 30 years researching Australian real estate – prompting BHP Billiton to spit the dummy and refuse to pay the $2,000-plus weekly rents the market is demanding.
In Port Hedland and Karratha, which service the iron ore mining projects of the Pilbara region in WA, typical weekly rents are around $2,000 a week. The federal inquiry into the use of fly-in-fly-out workers has been told that it costs major mining companies $100,000 more annually to accommodate a worker in Port Hedland than it does to fly them in from Perth for regular work shifts.
That’s the outcome you get when there really is a shortage of dwellings and strong demand.
But we’re not seeing anything like that in our capital cities.
The APM Rental Report finds that in the March Quarter there was no change to house rentals in Sydney, Melbourne, Brisbane or Perth, plus a small decline in Adelaide and a 2% drop in Canberra.
Darwin and Hobart were the only cities to record increases in house rents in the quarter.
There was an even more mediocre outcome with unit rents: declines in Sydney, Canberra and Darwin, plus no change in Melbourne, Brisbane, Adelaide, Perth and Hobart.
Looking at house rents on a yearly basis, Melbourne and Adelaide both recorded small declines. Sydney, Brisbane, Canberra and Hobart each had small annual increases between 1.5% and 2.7%. Perth houses rents grew 3.9% and Darwin was the only capital city to show significant movement, with house rents up 11.8%.
There was no meaningful movement in apartment rents anywhere. Hobart’s median decreased, and there was no change in Sydney, Melbourne and Adelaide. There were minor rises, less than 3%, in Perth, Canberra and Darwin. The biggest movement for unit rents was a 4.3% rise in Brisbane.
These are not figures to set markets alight or compel investors to dive in to buy capital city property.
It all reinforces one of my recurring points: that the best places to invest are found outside the capital cities, where prices are cheaper, returns higher and capital growth prospects better. The regions include locations that really do have housing shortages.