Rents slashed, but landlords and tenants see a light at the end of the tunnel
Landlords have been hit hard over the last six months, with job losses and paused migration causing a dwindling demand for rental properties.
In April this year with the peak of the pandemic strangling Australian households, median rents were slashed by 6.4 per cent. A massive 30 per cent of all properties on the rental market were being discounted as landlords and tenants came to agreements that would help them both survive.
In May, there was a slight improvement with median rent 5.6 per cent lower than its pre-pandemic number. Still, the proportion of rental listings with a discounted price dropped to 27.7 per cent – a significant number particularly if you are a landlord.
In order to keep their properties occupied, landlords have found they have no choice than to reduce their rental prices. Newly rented properties and existing leases have been affected.
“It's really quite remarkable seeing the jump in the number of properties being discounted in such a short space of time,” Nicola Powell, senior research analyst for Domain group told Business Insider Australia.
It’s now a tenant’s markets
With so many restrictions put in place due to the pandemic, there was a rapid shift making it a tenant’s market.
The closing of all Australian borders may also have attributed to this shift.
Tourists and international students are not permitted to enter the country or even move state to state. In many cases people returned to their home country to be with their families. International students were able to move back home with the shift to online learning.
Due to the cessation of migration, short term rentals became long-term accommodation therefore increasing the amount of available stock.
At the height of the pandemic, Sydney CBD recorded its highest vacancy rate on record, with the percentage of empty residences more than doubling. This led landlords to discount the prices on nearly 40 percent of its city and eastern suburbs properties in April, with more than one third of properties discounted from regular rental rates in May.
More than 7,000 extra vacancies have become available across Sydney, increasing the city’s total vacancy rate by 1 per cent to nearly 29,000.
Meanwhile, Melbourne recorded the second-highest increase with 5,500 additional empty residences. Approximately one in three inner Melbourne rentals were discounted last month.
One in four homes in Perth, Brisbane and Hobart were affected with median rental prices falling between four per cent and six per cent.
Unfortunately for Tasmania, this market has been one of the hardest hit, despite Hobart boasting one of the tightest rental markets in Australia.
Exacerbating the problem for landlords, was the proliferation of short-term accommodation back into the market as Airbnb guests vanished overnight.
Younger generations hit hardest
Along with the landlords, it’s the millennials and younger generations that are taking the biggest hits.
Rents may be low, however generations below X, have been hit hard by job losses, which have also caused problems for home ownership rates amongst this group. Home ownership amongst millennials was already low in this age group.
Those under the age of 29 could bear the brunt of the pandemic for years to come, given the substantial nature of job losses and wage cuts.
The Grattan Institute has stated that 11.8 per cent of jobs for those under 30 have disappeared since March and it reports those aged 15 to 24 will be the hardest hit by the unemployment crisis.
It is this demographic that is more likely to be renting than any other. It is this demographic that must now barter with landlords or move back into the family home as they try to manage costs.
Will it turn around?
There are hopes that the vacancy rate may start to drop as domestic travel restarts.
Businesses could be looking to redeploy staff in other states as per their rre-COVID-19 arrangements.
This could also give many landlords the opportunity to turn their rentals into short term accommodation through Airbnb.
Working in renters’ favour is the opening up of the economy. Whilst we have seen Victoria take a step backwards, most of the country is re-opening. That means jobs in hospitality and tourism and other industries that employ the millennial demographic will be once again looking to re-hire or bring in more staff.
It is likely that rents will remain below the pre-pandemic prices, however as the economic recovery kicks into gear at least empty apartments and houses will once again start to fill, while those who are struggling financially can find affordable places to live.
This update is not financial advice. This article is general news and information.
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