Canberra's rental squeeze

devils_advocate said :

Low interest rates help in two ways. One, your existing debt repayment burden will be less (but noting this won’t make a difference if it’s on a credit card as these interest rates are usually high anyway).

This only helps if the banks pass on these interest rate reductions by the RBA. Sure for new loans it may be of benefit, but existing loans won’t get dropped to today’s prices. Homeloans also haven’t fallen in line with the national lead, banks deciding instead to quash new loan numbers by keeping their existing customers dangling by the profits made to stockholders.

devils_advocate said :

Two, and this is probably the most important, lower interest rates reduce the opportunity cost of buying verses renting (in fact, as you note, it might actually reverse it, making it cheaper to buy than rent). All else being equal, I would have expected that to put downward pressure on rents, and over the past few years we’ve seen that, albeit it’s starting to pick up now. But the period of low rates and low rental returns would have been the best shot at saving a deposit, I would have thought.

It won’t matter how low the rates get, it doesn’t help people save for deposits. Higher interest rates are what they need, to make the most out of the money they are saving. Also, without a deposit it won’t matter what the interest rates are because people won’t be able to borrow the rest.
I see the logic of having lower lending rates in order to increase construction and housing supply. The problem is that builders are only using that to make the most profit in the fastest time, the inevitable result being multi story apartments, not three or four bedroom homes. Not everyone wants a pigeon hole in the birds nest of the city. Families need space, room for the kids and some distance from their neighbors to avoid encroaching on their privacy. Suburbia offers this but even when lots go up for auction, most are sold to developers and wealthy builders, who turn a profit by charging full market rate upon completion. Locals don’t get a fair go, there is nothing affordable. Once trapped in the cycle of looking through the rental section of the classsifieds, there is little hope of saving anything for your own home. For us it was the first home buyer grant that helped get that much needed “leg up” into home ownership. Our repayments are not too dissimilar to what an equivalent rental would be, neither had they been for the last twenty years. If only there’d been a helping hand back then.
BTW, it wasn’t just a lack of savings preventing our purchase of a home a few decades ago, but a close encounter with a dubious developer and unfulfilled promises. Thankfully we’d not lost our $1000 deposit and escaped the fate that others fell in to. Changing life circumstances then put us into the rental cycle and we were stuck, like so many others are now.

Talk of interest rates, deposits and such is totally pointless when both rental costs and prices of housing are unreachable even with a substantial deposit saved. Lending criteria for anybody other than single full time workers without children, are so tight that only the white collar double income with assets can meet the criteria demanded by lenders. Like I said, we already have a mortgage and even equity, but cannot even re-finance because they say we don’t earn enough. They want blood from a stone. The only way to remedy this, is for them to drop their rates to match the RBA and for house prices to drop to levels that reflect the incomes that normal people actually earn.

wildturkeycanoe said :

devils_advocate said :

It surprises me that more people haven’t used the prolonged period of low interest rates to save a deposit and buy. It’s been like this for years now and plenty of supply has come on line but rental demand seems as strong as ever.

Low interest rates are not going to help you get a deposit together. Saving up will, but only if your wages allow for it. A lot of rental prices are almost as expensive or even more than mortgage repayments, so how exactly can one save a deposit when they are paying most of their income to their landlord? The only way is to live at home with mum and dad, with cheap room and board? Once you are living on your own, the task of saving is near impossible.
Lending criteria also becomes a stumbling block. I have tried to refinance my own mortgage many times, but my income apparently is insufficient to service a home loan, even though I am already doing so and have been for over 7 years. You need a small lottery win to put a deposit down and also earn at least a six figure salary.

Low interest rates help in two ways. One, your existing debt repayment burden will be less (but noting this won’t make a difference if it’s on a credit card as these interest rates are usually high anyway). Two, and this is probably the most important, lower interest rates reduce the opportunity cost of buying verses renting (in fact, as you note, it might actually reverse it, making it cheaper to buy than rent). All else being equal, I would have expected that to put downward pressure on rents, and over the past few years we’ve seen that, albeit it’s starting to pick up now. But the period of low rates and low rental returns would have been the best shot at saving a deposit, I would have thought.

devils_advocate said :

It surprises me that more people haven’t used the prolonged period of low interest rates to save a deposit and buy. It’s been like this for years now and plenty of supply has come on line but rental demand seems as strong as ever.

Low interest rates are not going to help you get a deposit together. Saving up will, but only if your wages allow for it. A lot of rental prices are almost as expensive or even more than mortgage repayments, so how exactly can one save a deposit when they are paying most of their income to their landlord? The only way is to live at home with mum and dad, with cheap room and board? Once you are living on your own, the task of saving is near impossible.
Lending criteria also becomes a stumbling block. I have tried to refinance my own mortgage many times, but my income apparently is insufficient to service a home loan, even though I am already doing so and have been for over 7 years. You need a small lottery win to put a deposit down and also earn at least a six figure salary.

It surprises me that more people haven’t used the prolonged period of low interest rates to save a deposit and buy. It’s been like this for years now and plenty of supply has come on line but rental demand seems as strong as ever.

Rebecca Vassarotti said :

Thanks for this article Serina. I reflect on the fact that the situation is so much worse if you are on a low income. Anglicare produces an affordable rental snapshot each year, and their 2016 report was once again bleak for those trying to find affordable rental properties in the ACT. It found across the ACT, there was only 2 properties that you would be able to afford if you were receiving income support as your sole source of income (outside the aged pension, who fared a little better). If you were a young person receiving youth allowance there was no options, even when looking at shared arrangements. You can find the report here: http://www.anglicare.asn.au/docs/default-source/default-document-library/rental-affordability-snapshot-2016.pdf?sfvrsn=7

Thank you for for this information, I think it is probably a more important issue than the waiting lists/difficulties of getting a property for those looking at the middle to top end of the market. Affordability for housing in both rentals and purchases have gotten to the point that people are either moving to the country or becoming homeless. One thing has become clear of late is that home ownership is no longer a dream, but some distant memory of last century. If a family cannot afford a roof over their head with an average income, we can no longer call this the “Lucky Country”. The only lucky ones are the developers, landlords and the government who are all profiting on the backs of hard working Australians. There is no help from the banks to address the issue, with the RBA’s interest rates having plummeted for the last few years but those savings not being passed on by the lenders. They do however drop them for savings and investments, declare to the nation how much of a record profit they made again and close branches in areas that really do need them, proving how greedy and unfair they really are.
The boom in property market sales to foreigners hasn’t helped the issue at all, making it even harder for potential first home owners to get a foot in the door. This results in even more people entering the rental market and more competition means higher prices.
To top off all this, more jobs are becoming casualised and part time, meaning that borrowing for a mortgage is even harder as you cannot meet the lending criteria without a stable income, nor can you save up for a deposit without working your hands to the bone. Landlords also won’t see you as a good prospective tenant without a good, full time work history, which locks many more out of the housing market.
Nobody seems to be thinking up solutions to the problem. Housing can be built for much less cost with different materials, but the building regulations are so strict that you can’t deviate from the expenses involved. You can’t just buy land and build your own shelter, that is against the codes. Look at how people house themselves in third world countries, they use whatever they can afford or find. How many more people could be living in a dwelling instead of a half-way house or the back seat of their car if they simply had a block of land and a rummage through a builder’s waste pile? It beats sleeping out in the cold, but no, the government wants it done in the most regulative, expensive way possible.
I feel so bad for the folks who are born into this generation who have little hope of ever owning their own house, who will spend their lives moving from tenancy to tenancy every few years, never settling down to call a place home, if they are lucky enough to find a place at all.

Maryann you are right, it can be quite difficult for international students. I guess there is a lot more on campus accommodation now, but that can be hard for say postgraduate students with families.

John, I think the issue is partly seasonal and partly a factor of a lot of the same sort of two-bedroom new apartments being built (which isn’t affordable or suitable for everyone).

Rebecca that is a very sobering report. I once heard that Canberra has the second highest rate of homelessness in Australia. Is that still the case? Lately I seem to come across a lot of beggars in Canberra. I am not sure if there are more now than before, but for such an affluent city it is so sad.

Suzanne, exactly. If an applicant makes an effort on an application form it says volumes about their character.

Thanks for this, Serina. The advice on filling in the application forms in full is sound. When I rented out a property not so long ago, the young couple who had completed their form before they even arrived, and visibly showed their enthusiasm impressed me more than those who made little effort to fill in their forms properly. I figured that if they couldn’t be bothered to fill in the forms then they would also not bother to look after the property, or they simply were not as keen.