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The Australian Rental Crisis The next opportunity coming to a city near you
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February 2021
Welcome Thank you for reading this report. Freedom Property Investors is not a property company. We are a community of investors accessing the hidden market of positive cash-flow properties located in high growth locations across Australia. Led by Scott Kuru and Lianna Pan, two of Australia’s most successful property investors, we aim to provide our members with investment properties that outperform market averages for both capital growth and rental yield. Lianna Pan is one of only 3,000 qualified Actuaries in the country, and together we have perfected a detailed methodology
covering all fundamental aspects affecting the residential property market. Spending tens of thousands of dollars on our research, we also employ a full-time research team with access to property specific data not easily accessible to the everyday investor. Utilising a wide team of hundreds of experts around Australia, we work toward a common goal of helping create financial freedom for our members through property. We hope you enjoy this report and we look forward to helping you leverage our data insights to achieve your financial freedom.
Lianna Pan
Scott Kuru
Founder & Director of Research
Founder & CEO
The next opportunity coming to a city near you Australia is facing a rental housing crisis. Despite the widespread uncertainty in the property market due to COVID-19, the vacancy rate data has always shone a light on the facts of the Australian housing market. Currently what we are seeing is that we have a shortage of the right type of housing in most parts of the country. A healthy rental housing market has a vacancy rate of between 2% and 3%. When vacancy rates are around this figure, tenants are able to more easily select their next home without fear that the property will be snapped up before they even arrive at an inspection. In December 2019, the national vacancy rate was 2.5%. Even before COVID-19 arrived, most of Australia was experiencing a relatively tight rental market – providing you weren’t looking in locations with a glut of high-rise apartment buildings. The peak national vacancy rate in 2020 was in April, where the rate increased 0.1% to 2.6%, and since the peak in April 2020, the national vacancy rate has fallen -0.3% to 2.2%.
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The Australian Rental Crisis
“...landlords now wield more power than ever and, in some cases, achieve above average returns as more prospective tenants are prepared to offer higher rent...” National Residential Vacancy Rates Source: QSM Research 01
2. 4 k
60
.1 8 k
40
.1 2 k
20
Va cancy R a te ( %)
80
Va cancies
3 k
0 .6 k
0
0 0 52
026
70 2
0 28
0 29
0 12
1 02
2 1 02
Landlords, however, won’t be disappointed by this news as there is now a surplus of quality tenants readily available to take on a lease. Moreover, landlords now wield more power than ever and, in some cases, achieve above average returns as more prospective tenants are prepared to offer higher rent on a home that they are determined to secure.
3 1 02
4 1 02
5 1 02
6 1 02
7 1 02
8 1 02
9 1 02
02
1 20
It is because of this that many would-be tenants are now seeking lending from banks to purchase a home in their chosen areas rather than continuing to battle the rental market. With interest rates at historic lows and no signs of increases on the horizon, this in turn will drive greater property growth in many markets around the country.
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Year-on-Year Change in Vacancy Rates As at December 2020
National
-0.30%
Sydney
0.00%
Melbourne
2.20%
Brisbane
-1.10%
Perth
-1.60%
Adelaide
-0.40%
Canberra
-0.60%
Hobart Darwin
-3.00%
06
0.00% -2.60%
-2.00%
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-1.00%
0.00%
1.00%
2.00%
3.00%
However, the real situation becomes more clear when we start to look at the vacancy rates at a local level – at individual regions within those cities.
period, despite some temporary increases in vacancy rates around April 2020 that were in line with the national vacancy rates which had peaked during April.
For many regions, demand for housing is so far beyond supply that almost no property is sitting empty for an extended time. Coastal cities and towns seem to be some of the most popular, as in previous years many homeowners would normally lease out their homes over the summer period, however during the current pandemic they have not.
Melbourne was the only city to record an increase in the vacancy rate over this period, which was exacerbated by the extended lockdowns. However, an examination of the Melbourne vacancy rates at the postcode level reveals that the vacancy hotspots are in the higher-density residential zones. Moving outward from the CBD, the vacancy rates start to fall, and in
Greater Melbourne Vacancy Rate Heatmap by Postcodes Source: SQM Research
Additionally, there are many current renters who had their employment and income affected during the pandemic who would have otherwise sought to upsize, downsize or simply move around, therefore creating fewer leasing opportunities. The cities of Brisbane, Perth, Adelaide, Canberra, and Darwin all recorded a year-on-year decline in vacancy rate in December 2020. Sydney and Hobart, which are typically strong markets, recorded no change over this
the middle and outer ring suburbs (approximately 20-30km from the CBD), the vacancy rates are less than 2% – which indicate a very tight rental market. The central region of Melbourne shows a few hotspots where the vacancy rate exceeds 10%. Some regions within 20km of the CBD, the vacancy rate is above 4%. (Note: a vacancy rate of between 3% and 4% is considered normal and in-line with pre-COVID levels).
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A key driver in the coming rental crisis has been the lack of sufficient residential development of the right type of housing. The right type of housing largely depends on the area; some areas may be more favourable toward large family homes of three bedrooms or more. Other areas such as inner-city, would experience demand for studios and one-bedroom apartments. The chart below shows the latest data from the Australian Bureau of Statistics (ABS) as at November 2020 of the building approvals for private housing. We are seeing a sharp pick up in building approvals since June 2020, which comes off the back of a long
Dwellings Approved for Private Sector Houses (Seasonally Adjusted) Source: Australian Bureauseasonally of Statistics (ABS) Dwellings approved, private sector houses, adjusted 12,000 12,000
Number no. of Dwellings
-23% 10,000 10,000
8,000 8,000
6,000 6,000
5-Nov 6-Feb 6-May 6-Aug 6-Nov 7-Feb 7-May 7-Aug 7-Nov 8-Feb 8-May 8-Aug 8-Nov 9-Feb 9-May 9-Aug 9-Nov 10-Feb 10-May 10-Aug 10-Nov 11-Feb 11-May 11-Aug 11-Nov 12-Feb 12-May 12-Aug 12-Nov 13-Feb 13-May 13-Aug 13-Nov 14-Feb 14-May 14-Aug 14-Nov 15-Feb 15-May 15-Aug 15-Nov 16-Feb 16-May 16-Aug 16-Nov 17-Feb 17-May 17-Aug 17-Nov 18-Feb 18-May 18-Aug 18-Nov 19-Feb 19-May 19-Aug 19-Nov 20-Feb 20-May 20-Aug 20-Nov
4,000 4,000
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
period of declining housing construction that started in March 2018, and then fell -23% by June 2020.
for housing across numerous regions in the country, particularly surrounding our major capital cities.
However, during the period from March 2018 until June 2020, Australia’s population growth rate had remained relatively high, at an average of 1.5% per annum, which equates to another 788,410 people.
Therefore, while dwelling construction levels were decreasing, our population as a country was increasing which in turn has contributed to the critical shortage of housing that we are experiencing today.
As you would expect, each new resident and member of the population adds yet another unit of demand
Local real estate agents across Australia will confirm the fact that competition creates results. This is
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The Australian Rental Crisis
“
Historically speaking; times of crisis often present investors with significant opportunity to create & increase wealth. Lianna Pan Founder, Head of Research
Annual Population and Annual Change Australian Bureau of Statistics (ABS) AnnualSource: population and annual change Annual Growth Annual growthRate rate 2.25 2.25
Population Population
+780,000
27,000,000 27,000,000 26,000,000 26,000,000
24,000,000 24,000,000 1.75 1.75
Avg: 1.5% p.a
23,000,000 23,000,000 22,000,000 22,000,000
1.50 1.50
21,000,000 21,000,000
Population
Annual growth rate
25,000,000 25,000,000
Population
Annual Growth Rate
2.00 2.00
20,000,000 20,000,000
1.25 1.25
1.00 1.00
Jun-00 Dec-00 1-Jun 1-Dec 2-Jun 2-Dec 3-Jun 3-Dec 4-Jun 4-Dec 5-Jun 5-Dec 6-Jun 6-Dec 7-Jun 7-Dec 8-Jun 8-Dec 9-Jun 9-Dec 10-Jun 10-Dec 11-Jun 11-Dec 12-Jun 12-Dec 13-Jun 13-Dec 14-Jun 14-Dec 15-Jun 15-Dec 16-Jun 16-Dec 17-Jun 17-Dec 18-Jun 18-Dec 19-Jun 19-Dec 20-Jun
19,000,000 19,000,000 18,000,000 18,000,000
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
particularly true within the property sector as owners who may be considering selling, as well as current and future landlords, will be seeing more and more prospective purchasers and tenants competing for their next property.
from now and well into the future. The team at Freedom Property Investors were well-equipped to help our members adapt to this changing market dynamic throughout 2020 by identifying areas of investment opportunity.
Investors who were savvy enough to enter the market during the COVID-19 challenges of 2020 are set to see enormous growth and will capitalise
As a result of this, many of these members are now well on their way to achieving their financial freedom through property.
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The housing shortage (of the right type of housing) has become increasingly critical in recent months. For example, in cities like Brisbane, the vacancy rate heatmap shows that the rate is less than 2% across the majority of the city, with many regions recording rates under 1%. What we see in Brisbane is reflected across most of Australia (with the exception of inner-city Melbourne and Sydney), as population movements shift the demand from the city centres towards outer regions, where there is an historically low level of supply. Furthermore, to get a better indication of the future
situation, we look at the trends in the changes to the vacancy rate. The adjacent heatmap shows the change in vacancy rates in Brisbane from the month of peak national vacancy rate (April 2020) to the current rates as at December 2020. Here, we can see the speed at which vacancy rates are falling across the city, with many locations recording a drop in vacancies of between -50% and -100% over this relatively short period. If current trends continue, there will be many suburbs in Brisbane with no available properties for rent. This increasing competition for housing will serve only to
Brisbane Vacancy Rate Heatmap by Postcodes (as at December 2020) Source: SQM Research
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Change in Brisbane Vacancy Rates by Postcodes (Apr – Dec 2020) Source: SQM Research
benefit those holding properties in this region. With upwards pressure on house prices, and better cash flow from increasing rents, it pays to partner with data driven experts who are able to accurately pin point investment hotspots. For those who are not yet positioned to benefit from these trends, there is still a small window of time to take advantage of the opportunity that this presents. The Reserve Bank of Australia (RBA), as well as multiple major banks, are forecasting further price growth over the next three years – driven by economic recovery measures and low interest rates. In particular, Westpac forecast a ‘surge’ in house prices of 15% over two years from June 2021 nationally, with cities like Brisbane set to outperform the national
average. And with interest rates likely to remain at low levels for an extended period, the RBA are predicting house values could see a jump of over 30% in just three years. Freedom Property Investors approach property investment as a science, relying on a strict and precise methodology for selecting future high growth property markets across Australia. We aim to provide our members with investment properties that will outperform market averages for both capital growth and rental yield. If you would like to know more about how you can maximise on these opportunities, contact our friendly team of experts today. Contact our friendly team today:
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