What’s Really Driving the Rental Crisis?

It’s the first day of lockdown, March 2020, and there’s a convoy of removalists not far from where I’m writing this moowsletter.

Young renters are fleeing back home because it’s cheaper and safer.

Things are getting serious.

The Corona virus is now referred to as COVID-19. It has no antibody, no vaccine and no one’s sure how virulent it is.

There’s also talk of a depression.

But the biggest changes are happening at home. In particular, the ‘race for space’.

Renters and buyers only want houses with a ‘zoom room’.

Houses are also considered safer than apartments because of their isolation from the virus, supposedly.

Consequently, the market for houses heats up while the future for units looks luke warm.

But now, three years later, the rental market has done a massive U-turn and the demand for units is white hot, possibly more than houses.

So what’s really driving the rental crisis because there’s been a supply issue for decades and it will probably continue for a few more.

1. Leaving the nest – a lot of renters who flew home during covid have returned to the rental market.

2. Empty nesters – baby boomers are the largest cohort in the economy and as their children have flown the coup, most have downsized into two or three-bedroom apartments…with plenty of cash! This has squeezed a lot of first home buyers out of the market, forcing them to rent longer.

3. Borrowing capacity – rising rates have shrunk the borrowing capacity of many first home buyers, again forcing them to rent longer.

4. Overseas buyers – they’re back! Just like the downsizers, they’ve priced first time buyers out of the market. More renting.

5. Travelers – with the borders reopened, a lot of landlords have opted for short term, high rent leases. E.g. Airbnb

6. Tradies – even if we had the land and materials to build more dwellings, there would be a massive shortage of tradies.

7. Immigration – in the next two years, six hundred thousand immigrants will arrive here in Oz. That’s almost two Canberra’s!

And let’s not forget this brainchild…

Four years ago, there was a big political push to remove negative gearing (and franking credits).

Imagine the state of our rental market if that bill was passed in parliament.

In any case, the biggest influence on our real estate market right now are downsizers.

Most within this cohort can purchase any two-three-bedroom apartment without borrowing a cent, and then sock away the change into their super.

Put simply, the boomers are squeezing their babies out of the market.

And the convoy isn’t slowing down!

Have a great weekend!

Adam

Back paddock: it’s how we look at the problem that’s the problem – Stephen Covey