Looking Behind the Rental Market
Property markets in general, and Sydney’s residential market in particular, attract lots of attention. And while speculation always plays a part, at times there appears to be a somewhat polarised view which is either all boom or all gloom. It’s either feast or famine, with buyers being enslaved by high prices or vendors having to suffer losses.
It’s a view that is even more polarised when it comes to property investors, and off-shore buyers and both have been painted as the ‘bad-guys’ of the market. So much so that we appear to have frightened of many off-shore buyers and are doing our best to scare and discourage investors.
Aussie love property investment and there’s really no reason why the market should be carried away with negative news. Or equally be blinded by over confidence, both are negative trends.
Markets always tick over, they naturally fluctuate. Values move up and down, rentals change and so do vacancy rates. They always will.
Against this background let’s take a look at how the NSW rental market has been going over the last 2 years, and it appears that despite all the mixed commentary, the rental market continues to function in an orderly and positive manner.
For the statistics, I’m going to refer to the figures published by the NSW Rental Bond Board.
This is a very deep and broad measure of the private rental market across NSW and shows some interesting figures. For these figures (shown below) I’m taking a state-wide view and will return to more segmented markets in another post, but for now let’s adopt the full state-wide picture.
Raw Numbers Grow
It will come as no surprise that the number of rental properties has increased over the past two years. From the number of bonds lodged the figures show there were 305,158 tenancies in 2016 and that grew to 317,677 tenancies at the 31st of December 2017 an increase of 12,519 occupied properties for the 12 months.
It’s reasonable to suggest much of the increase was new rental investments and right away it can be seen that stock levels have grown at a very steady pace. Trending up over the two-years with more supply but no worrying spikes in supply.
As might be expected the months with the highest level of demand were February and March for both 2016 and 2017, following a slump in January as the holidays impacted demand, as they always have.
On a simple average, there are around 25,950 new bonds lodged every month across NSW. These would include already established properties but would also include new stock being added as projects complete and investors enter the market with new listings.
The graph below shows the pattern of bonds month by month over the two years, and it reveals a fairly even pace of take-up and rentals are overlaid for further comparison.
In January 2016, average rents across NSW were $482.50 per week and that figure had increased to $518.78 in December 2017, peaking at $525.53 as an average weekly rent in October 2017.
The slight fall between October and December appears to be no more than a season drop and previous falls can be seen in May 2016 and July 2017. The general direction for all averaged rentals is up against a consistent level of increased supply.
Across the 2-year period supply has increased by approximately 4.1%, and while this is running slightly above population growth for Sydney, the gap is not huge and would help contain some ongoing rental growth, although the published figures show higher vacancy rates to be patchy.
Sydney’s population grew by 3.96% in 2016 and by 2.29% in 2017 below the rate of growth shown in the number of bonds and this may create pressures for lower rents in less prime locations or among older stock. Where new stock is available there’s an advantage as people will gravitate towards new stock.
Despite the surge in apartment numbers and continued strong development approvals, in my opinion the table reflects an ‘orderly market’.
It is also a reality that not all development approvals always proceed to constructions, some will be delayed and even mothballed for the immediate future. Plans can also be modified and this also delays construction. There are already signs of slower new construction activity and this may again see supply limited in the next few years.
There’s an obvious gap between the rate of new apartments coming onto the market and the rate of population growth. This may contain some rental growth in the short-term, but could also deliver an upside to anyone renting and saving for a new home to purchase, thus helping to potentially boost affordability.
Markets are always complex, and with the supply of rental accommodation in NSW heading towards 340,000 plus tenancies over-stating or speculating market trends is rash.