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Why are rents becoming so expensive and what does this mean for the investor?
Are rents expensive, or are they going back to where they should be?
Why are rents becoming so expensive and what does this mean for the investor?
Rents rising for tenants is unfortunately a case of “you don’t know what you’ve got ’til it’s gone”. For many years now, rents have been cheap and the current increase, where rents are “rising through the roof”, is actually just bringing them in line with what they should be. And of course this will be good news for the investor.
Rents for the past 17 years have not kept pace with wage increases, which in turn has meant that tenants’ disposable income has proportionally grown with time.
property prices have reached a critical level, where individuals… can’t afford to buy.
Since many individuals entered the tenant market during the low cost period, and therefore having only ever experienced cheap rent, they now expect it. The difficulty is that rents are now in catch-up mode, and with rent being cheap for so long, tenants are finding it difficult to readjust.
But what has stopped this period of rental stagnation?
In simple terms the process began when banks started to lend more and the Howard government introduced measures such as the First Home Buyers’ Grant. This meant that more individuals had the money to buy, and so many left the rental market to become owner occupiers. This reduced the demand for rental properties and so rents remained low.
The increased demand to buy and the limited supply of homes led to residential property prices dramatically increasing. But now, property prices have reached a critical level, where individuals even with the help of banks and the first home buyers grant, can’t afford to buy.
With many individuals being priced out of the market, they are now forced to rent. This combined with record immigration and the city living becoming even more desired has led to rents dramatically increasing.
For investors this is all good news.
Rental yields are quickly improving and this has been evidenced in our recently released Best Rent Report (a report which details the suburbs Australia wide which are likely to give the best capital growth and rental yield), where the selection criteria for total returns has been risen in the last quarter from 8% to 10% p.a..
Since rental yields are on the rise, investors should ensure that rental agreements are short, allowing them to frequently renegotiate rents to take advantage of the rental rises.
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