Rents Keep Rising, Auction Markets Cooling, What It Means for Property Investors | Property Insiders

The episode begins by highlighting the significant increases in rental prices across major Australian cities, with Sydney rents up almost 10% and Melbourne unit rents rising nearly 7% in a single month. Vacancy rates are at historic lows. The discussion points out that federal government tax changes, aimed at property investors, are likely to worsen this rental crisis by reducing the supply of rental properties. The hosts promise to analyze rental markets, labor markets, and auction results to provide a comprehensive view of the housing market's direction.

Dr. Andrew Wilson explains that recent policy decisions and tax changes targeting investors are intended to encourage first-home buyers but will inadvertently lead to fewer investment properties. This reduction in supply will further exacerbate the critical position of the rental markets, where rents are already surging again after a brief stabilization. The 'build-to-rent' schemes promoted by the government are deemed insufficient to address the scale of the rental problem and are criticized for being more about 'sloganeering' than practical solutions.

House rents saw an overall increase in June compared to May, with Sydney leading at 2.9% and Melbourne at 1.7%. Annually, Sydney house rents are up 9.4% and Melbourne 3.4%. Sydney remains the most expensive capital for renting a house at $875 per week, with Darwin at $850. Hobart and Melbourne are the most affordable. Despite some easing in June, house vacancy rates remain very low, mostly under 1.5%, indicating a continued shortage of rental properties.

Unit rents also increased in June, with Sydney up 2.2% and Melbourne up 6.8% over the month. Annually, Sydney unit rents have risen by 9%, and Melbourne by 5.9%. Sydney is the most expensive for unit rentals at $818 per week, while Hobart is the most affordable at $519. Similar to houses, unit vacancy rates eased slightly in June but remain challenging for prospective tenants, with most still in favor of landlords.

The conversation shifts to labor markets, noting the Reserve Bank's focus on unemployment rates. After a slight rise in April, which suggested an easing business cycle, May's figures showed a drop in unemployment to 4.4%, with job numbers up by 40,000. The participation rate remained high at 66.7%, and Queensland recorded the lowest unemployment among states at 3.7%. These strong labor market figures indicate that earlier signs of a slowdown were temporary, prompting the Reserve Bank to continue focusing on inflation control.

While rental markets are tight, auction markets are cooling. Capital city auction clearance rates were subdued in the first week of July, influenced by school holidays, winter, and cautious buyer and seller confidence. Higher interest rates over the past three months have impacted affordability and short-term confidence. The market is also affected by seasonal factors, with winter typically being a quieter period. Clearance rates are showing signs of steadying, potentially having 'trough' around the 50% mark, which is historically a recovery point. Auction volumes are lower, reflecting the seasonal effect and falling house prices.

The market started falling at the beginning of the year after a period of strong growth, and this trend of subdued growth and falling prices is expected to continue for several months. The hosts emphasize that spring will follow winter in the housing market cycle, and interest rates will eventually fall as inflation is controlled. They conclude that rental and sales markets are driven by different forces: rents by supply-demand mismatch, and sales by consumer sentiment and interest rates. Investors are advised to be strategic and seek expert advice during these diverging market conditions.