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A bleak outlook for tenants with rising rentals

Michael Yardney and Dr Andrew Wilson discuss the property market implications for tenants.

Video transcript

MICHAEL YARDNEY: It's tough for tenants out there. There's a shortage of rental properties available, both houses and apartments, with intense competition for the limited supply. And that's driving up rentals around Australia. And there's no relief in sight. According to Dr. Andrew Wilson's My Housing Market, the already low vacancy rate continues to fall over May, driving rents even higher. So that's the topic of today's "Property Insider" chat for Yahoo Finance Hi, Andrew

ANDREW WILSON: Yeah. No, no positive news for tenants over May, Michael. Vacancy rates continue to tighten. Rents continue to rise. And rise is probably a moderate word. They're skyrocketing at the moment. It is a very tough market for tenants, even those submarkets, the Melbourne CBD unit market and some of those inner-suburban Sydney unit markets. Vacancy rates are falling quite sharply there now. And available properties are being soaked up quite quickly.

And we're also seeing rents rising in those areas for units. And, of course, they are coming from a lower base. But nonetheless they're the only-- or were the only bright spots for tenants looking for more supply than demand. But now that's even starting to reveal a complete market where we certainly have a shortage of rental properties and really no sign in sight that we'll see any relief to a shortage of rental properties and higher rents. So good news for landlords, not so good news for tenants, Michael.

MICHAEL YARDNEY: It's really related to supply and demand. And with vacancy rates so low, rents are going up. The demand is increasing because the borders are open. The airports are busier. Students are back. Expats are returning. People are coming to Australia.

Now, normally, the demand would also be filled by lots of new apartments. But from what I'm hearing, a lot of the new apartment towers that were on the drawing board aren't going ahead related to higher building costs, difficulties getting builders, uncertainty about completions, Andrew.

ANDREW WILSON: Yeah, well, everywhere you look, Michael, it's a story of too much demand and not enough supply. And going forward there's really no potential to ease that imbalance. We've got borders open again. That means migrants. That means international students. Of course, international students are particular drivers of demand in inner-city apartment markets.

We still have very low building levels. Apartment approvals are down by nearly 50% compared to four or five years ago. Part of that overreach in terms of supply through COVID in the inner-city apartment markets was because the Airbnb landlords were shifting to permanence. Now, Airbnb is now back into holiday accommodation generally because there is significant demand there.

It's getting a lot tougher to get an Airbnb property in Melbourne and Sydney. And of course, those rents are rising as well, reflecting, again, open borders and higher demand. And as you said, Michael, that will only increase. So that means that what was available as permanent that were Airbnb has now gone back to Airbnb, which means even fewer choices for tenants. And it is almost a perfect storm of demand over supply not just now, but into the future.

MICHAEL YARDNEY: There's no short-term solutions, as far as I can see. And because cost of living's going up, because it's harder to save a deposit, or because house prices have gone up as well, you can see that a lot of first-home buyers are not going to be able to get into the market like they were hoping to. We've brought forward a bit of first-home buyer demand with those grants over the COVID period. I guess that means there's going to be more tenants looking for accommodation not moving into the first-home buyer market.

ANDREW WILSON: Yeah, that's right, Michael. And I think the other point is also about affordable choices. And as vacancy rates for houses are at near record lows, factors of COVID work from home has driven that to some degree, perhaps a little overstated but nonetheless with those very high rents for houses, particularly in Melbourne and Sydney, tenants will be looking for more affordable choices. And that means apartments, you know.

And it is all part of that irresistible drive to apartment living, particularly in Sydney, but also in the other major capitals of Melbourne and Brisbane. So as I said, it's quite a bleak outlook for tenants. And they should expect, unfortunately, to be paying more and more for rent. And in an environment where inflation is that 20- 30-year highs, that's just another burden to carry.

MICHAEL YARDNEY: Look forward to catching up with you again next week and seeing what other news we have.

ANDREW WILSON: Yes, thank you, Michael.

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