Four Corners’ episode last week “No place to call home – the new face of homelessness in Australia” made for sombre viewing.
It followed the stories of hard-working young Australians, primarily single mothers, as they desperately try to find even the most basic accommodation for their families in regional towns.
They talk of applying for hundreds of properties, only to be in competition with dozens of other applicants, and to face the demoralizing news that they were yet again unsuccessful.
In seaside centres such as Coffs Harbour, the shortage of affordable accommodation has been exacerbated by an influx of people from Sydney and Melbourne.
Office workers previously bound to CBD locations, have discovered a new sense of freedom. As we emerge from COVID, the evolution of the work environment for some means all they need is internet access to login to their work from anywhere.
It’s easy to see why the lure of a sea-change or tree-change has been too tempting to resist, but it’s impact on the rental market has had repercussions for many.
It’s not just the WFH transition that’s caused the disequilibrium.
Australia is caught in a perfect storm of rising interest rates, escalating costs of materials, global economic uncertainty, oil price volatility and more.
The rental crisis in Australia
The rental crisis has not been caused by COVID, but the pandemic has definitely made it worse.
Already a challenging situation in 2019, the national rental vacancy rates fell to 0.9% in August 2022, according to SQM research, the lowest rate since 2006. This is well below the 3% margin which is considered to represent a healthy market balance.
The plummeting vacancy rates have been brought about by many factors:
- Australians returning from overseas during COVID and moving back into properties (somewhat offset by people leaving our shores to return to their own homes during COVID);
- Lack of housing supply and delays in new builds as construction companies grapple with rising costs of materials and labour;
- Landlords turning their properties into short term rentals and removing them from the rental pool;
- Changing lifestyles, with “knowledge workers” capitalizing on the ability to work from anywhere and leaving behind the hustle and density of capital city living – seeking a seachange or a treechange;
- Higher construction costs and difficulties getting contractors;
- Interest rates are increasing, pushing rents up to cover mortgage payments;
- Some properties are still not repaired from the floods early in 2022, even as Australia braces for a third season of La Nina.
The rental crisis is not isolated to regional towns either.
Corelogic’s quarterly rental review showed the national rental index increased 0.9% in the month to June and 2.9% over the June quarter.
“Rents are 9.1% higher across capital cities and are up 10.8% in regional cities compared with June 2021. Canberra remained the country’s most expensive rental market, with the typical home renting for $690 per week, ahead of Sydney which recorded a median rental value of $643 per week, and Darwin at $565 per week.”2
While this appears to be good news for Landlords burdened with increasing mortgage payments, the disconnect between demand and supply in affordable housing is a problem that needs addressing.
The Laptop Line
There’s a new phrase being bandied about over the past week or so.
The Laptop Line divides those in inner cities in largely white collar jobs that are able to work from home, against the balance of people who have to show up to a place of work in order to do their jobs.
Think police, teachers, construction workers, nurses, among others.
These professions are integral to the fabric of our cities and towns.
And oftentimes they can least afford to live close to work.
This isn’t the first time this has happened, albeit for different reasons.
Towns that benefited from rising property prices during the various mining booms of the 90’s and 2000’s, also experienced the challenge of shortages of essential workers who couldn’t afford the living costs brought about by skyrocketing rents.
This isn’t just a property problem, it’s a society issue.
Is WFH here to stay?
The “working from home” phenomena is a hot topic in the media and on platforms such as LinkedIn.
Everyone from the CEOs of major property companies to Hamish McDonald on the Project has a view on the subject, and they’re not afraid to share it.
Whatever your perspective, it does seem set to stay in some form or another, most likely in a hybrid form of flexible working.
If the reality is that workers need to front up to their place of work 1-2 days a week as has been suggested, this may go some way to alleviate the pressure on rents in towns such as Coffs Harbour.
But it will take time to play out and it doesn’t help those looking for properties to rent right now.
The supply side
On the supply side the picture is not much prettier, with recent reports that lending for new homes continues to slow.
The ABS recently released the Lending to Households and Business data for August 2022, showing a 3.4% decline in the total value of housing loans, brought about largely by the economic tightening we’re currently experiencing.
“The decline in August brings the value of housing loans to its lowest level in almost two years, down by 15.4 per cent on three months earlier,” according to Tom Devitt, an economist with HIA, the Housing Industry Association.3
“The number of loans for the construction or purchase of new homes also declined by 4.5 per cent in August, to its lowest level since March 2020 – the first month of the pandemic in Australia. This is consistent with other leading indicators, such as HIA’s New Home Sales Survey, showing new home sales dropped in July and August in response to higher interest rates.”
So if property owners and developers are faced with tightening credit restrictions and hurdles to financing, or are loathe to take out building loans in the face of higher interest rates, where does this leave our housing supply pipeline?
This combined with rising costs of materials and lack of available contractors, and construction firms struggling to stay solvent, suggests the housing demand/supply equation is under even further threat if nothing changes.
The way forward
If the RBA’s intent in increasing interest rates is to put the brakes on an overheated property market and halt inflation, then it appears to be having an impact.
But with so many levers at play at both a micro and macro level, the fallout is being felt at all levels of the economy.
The Federal and State Governments are not unaware of the issues, with QLD State Government holding a Housing Summit in October this year and the topics being hotly debated.
We need to find solutions for affordable housing, as well as support for a struggling construction sector.
Levers such as incentives for developers to include higher ratios of affordable housing in developments and forums that place the many issues of housing and living costs front and centre of national policy are required.
Property owners and developers have a critical role to play in addressing the imbalance between supply and demand, but they cannot be expected to fix the problem in isolation.
If ever there was a time to be prudent in making decisions, it’s now.
Whether you call it luck or opportunity, Australia is still a great place to be for many, and we need to make sure it stays that way for every single one of us.
As a nation, we might have temporarily lost our mojo, but with a team effort, we can get it back.
MCG Quantity Surveyors are committed to playing their part in ensuring a prosperous and safe Australia for all.
We can help developers and home owners ensure they are making the best decisions when it comes to feasibilities and cost estimates, prior to embarking on projects, and assist with tax depreciation schedules to get the most out of any development or purchase.
1 “No place to call home – The new face of homelessness in Australia” 3 October 2022 <abc.net.au/4corners>
2 “Rents rise at fastest rate in 14 years across Australia” July 2022 <theguardian.com>
3 “Lending to build a new home continues to slow” September 2022 <HIA.com.au>