February 7, 2010
THIS is quickly shaping up to be the decade of the landlord.
Renters were the winners last year when median asking rents for both houses and units in Sydney rose by just $10 per week, up to $460 a week for houses and $420 a week for units. Such growth of just over 2per cent was well below the longer-term trend of 6-7per cent annual growth, and down heavily on the 12-13per cent growth rates experienced in 2007 and 2008.
So why didn't rents move much during a year when the economy was recovering and a booming housing market saw prices rise more than 12per cent?
Landlords with mortgages had just had a full year of historically low interest rates to reduce their costs, meaning there was less justification for passing costs on to renters. On the renter side, jobs were being lost across Sydney and the national unemployment rate rose to 5.8per cent by June and remained there until October. December was the first month of falling unemployment, and it was only then that most commentators said the jobless rate had peaked.
So renters were understandably nervous about job security for most of the year, which meant they were less able (and willing) to accept any rental increases. Not only that, but the first-home owners' grant available throughout the year simply added to the attractiveness of home ownership as an alternative to renting.
These factors stayed the hand of Sydney landlords for the majority of the year.
It is hard to see this continuing. We've already had three interest rate rises in the final quarter last year, increasing mortgage rates by more than the 0.75per cent, along with the big lenders adding to the official rate rises. An improving employment outlook means renters will be more likely to agree to higher rents to secure the desired property compared with the past 12-24 months.
The first-home owners' grant ending on December 31, along with strong house price growth, has made the move from renting to owning a less attractive proposition this year than last.
In an era of an undersupply of new properties, strong population growth and low vacancy rates, it is hardly surprising that the year of the renter is over.
- Matthew Bell is the economist for the Fairfax Media-owned Australian Property Monitors.
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