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Rental prices falling

johnboy 10 October 2013 25

If the previously unprecedented sight of “for rent” appearing on Canberra’s streets wasn’t enough the ABC has data on the long awaited holes opening up in the market:

The latest Australian Property Monitors report shows median asking rents for houses in Canberra dropped 3.6 per cent, from $480 to $463 a week, in the September quarter.

Unit rents were down 1.7 per cent dropping from $410 dollars to $403 a week.

That is the largest drop in any capital city.

For the 12 months to September, unit rents are down 6.3 per cent and house rents are down 3.6 per cent.

Weep oh renters for the financial losses of the investment property owners!


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MissChief 6:13 pm 11 Oct 13

Grrrr said :

MissChief said :

Median price is the middle of the range with highest and lowest prices removed

No, it’s not – the median is the middle of ALL values. Also, outliers (as extremes of high and low values are called) do not affect the Median as strongly as the do the Mean (the “average”) which is precisely why it’s used in the case of realestate.

It could be that the median this quarter is less because there are more 3 bedroom houses than 4 bedroom houses being listed, or that the quality/inclusions are less. The same goes for units.

Or, it could be that there are more 4 bedroom houses and less 3 bedroom houses and the relative to the number of rooms, rent has dropped futher. It’s not unreasonable to assume that, given that the sample set (number of houses on the rental market) is large enough that such variation is insignificant.

Though feel free to collate statistics on a per-bedroom basis, after you’ve revised Statistics 101.

Yes, you’ve reiterated my point about making assumptions. You cannot be sure what you are being told with these statistics. What is it they say, “Never assume, it makes an ass out of u and me?”… except I’m warning about assumption so I guess it only makes an ass out of you.

Ronald_Coase 4:59 pm 11 Oct 13

Grrrr said :

MissChief said :

Median price is the middle of the range with highest and lowest prices removed

No, it’s not – the median is the middle of ALL values. Also, outliers (as extremes of high and low values are called) do not affect the Median as strongly as the do the Mean (the “average”) which is precisely why it’s used …

Hmm, yeah nah. The median is not affected at all by outliers except in very trivial cases with even sample sizes, but I’ll happily stand corrected if I missed that bit of Stats101.

arescarti42 3:58 pm 11 Oct 13

SheepGroper said :

chewy14 said :

the fact that the vast majority of negatively geared properties come from existing housing stock.

I tried searching for information about percentage of investment properties being new and couldn’t find anything – where did you get your information from? The best I could do was ABS statistics about percentage of population that own rental properties, age etc breakdowns, property type breakdowns, nothing on whether the rental properties were new or second hand.

RBA lending commitments is the data you want.

chewy14 3:54 pm 11 Oct 13

SheepGroper said :

chewy14 said :

the fact that the vast majority of negatively geared properties come from existing housing stock.

I tried searching for information about percentage of investment properties being new and couldn’t find anything – where did you get your information from? The best I could do was ABS statistics about percentage of population that own rental properties, age etc breakdowns, property type breakdowns, nothing on whether the rental properties were new or second ha
nd.

The RBA produce statistics on it. You can find a nice graph (among some others) in this article:
http://www.macrobusiness.com.au/2012/10/negative-gearing-exposed/

SheepGroper 2:58 pm 11 Oct 13

chewy14 said :

the fact that the vast majority of negatively geared properties come from existing housing stock.

I tried searching for information about percentage of investment properties being new and couldn’t find anything – where did you get your information from? The best I could do was ABS statistics about percentage of population that own rental properties, age etc breakdowns, property type breakdowns, nothing on whether the rental properties were new or second hand.

Grrrr 12:56 pm 11 Oct 13

MissChief said :

Median price is the middle of the range with highest and lowest prices removed

No, it’s not – the median is the middle of ALL values. Also, outliers (as extremes of high and low values are called) do not affect the Median as strongly as the do the Mean (the “average”) which is precisely why it’s used in the case of realestate.

It could be that the median this quarter is less because there are more 3 bedroom houses than 4 bedroom houses being listed, or that the quality/inclusions are less. The same goes for units.

Or, it could be that there are more 4 bedroom houses and less 3 bedroom houses and the relative to the number of rooms, rent has dropped futher. It’s not unreasonable to assume that, given that the sample set (number of houses on the rental market) is large enough that such variation is insignificant.

Though feel free to collate statistics on a per-bedroom basis, after you’ve revised Statistics 101.

chewy14 11:22 am 11 Oct 13

Innovation said :

Reducing the amount of annual losses from investments that could be offset against other income would be likely to reduce the spiraling pressure on property prices and rents, allow some renters into the home owner market and stop medium to high income earners from minimising their tax at the expense of others. If the Feds are worried about market forces, they could test the waters by only allowing around 90% of losses to be negatively geared on newly acquired properties and over time decrease this rate until they have a suitable balance. Splitting the savings with the States/Territories would give them an additional revenue base too.

+1,

The government should revisit the recommendations in the Henry review and limit the amount claimable, phased downwards over a suitable time period to prevent investment uncertainty.

Innovation 10:10 am 11 Oct 13

Reducing the amount of annual losses from investments that could be offset against other income would be likely to reduce the spiraling pressure on property prices and rents, allow some renters into the home owner market and stop medium to high income earners from minimising their tax at the expense of others. If the Feds are worried about market forces, they could test the waters by only allowing around 90% of losses to be negatively geared on newly acquired properties and over time decrease this rate until they have a suitable balance. Splitting the savings with the States/Territories would give them an additional revenue base too.

chewy14 9:42 am 11 Oct 13

tim_c said :

arescarti42 said :

tim_c said :

Dilandach said :

“Weep oh renters for the financial losses of the investment property owners!”

When they get rid of negative gearing, I might shed a tear or two. Most likely tears of joy.

Yeah, because removing the incentives for people to rent out homes will help with rental vacancies, won’t it?

The way to improve the rental vacancy rate is to build more rental dwellings. The overwhelming majority (90%+) of negatively geared investors invest in existing dwellings, not new ones. If those investors aren’t increasing the supply of dwellings, then all they’re doing is pushing up prices and out competing potential home owners, forcing them on to the rental market.

So really negative gearing does sweet FA for rental vacancy or affordability, reduces the rate of home ownership, artificially pushes up prices, and costs non-negatively geared tax payers about $5.5 billion a year in subsidies.

It is the epitome of failed government policies.

So what if investors are buying existing homes rather than new – if more homes are bought by investors, there will be more available for rent. If all the existing homes are bought by owner-occupiers, none of them will be available for renting.

Astute investors aren’t going to buy properties they can’t easily rent, so they’re not just going to be buying new places just to increase the supply of dwellings – they’re not charities (otherwise it wouldn’t be called “investment”)! Interestingly, the Manhattan project (recently completed on Akuna St) supplied some 330 new dwellings, approximately 90% of which were bought by investors…so much for investors always only buying existing residences!

The ACT Gov’t has been one of the major contributors to the lack of housing supply in Canberra through policies such as excessive taxes including the change-of-use tax as well as the process for holding/releasing land for new development.

Your one anedoctal example doesn’t effect the fact that the vast majority of negatively geared properties come from existing housing stock. That these investors are competing with possible owner occupiers and pushing home ownership out of reach for many.

The point arescarti is making is that changes such as removing negative gearing and stamp duty will mean more people would be able to afford to buy rather than rent due to the reduction in prices that would occur. The overall rental demand would come down over time and the extreme generousity of investors purchasing property just to help out these poor renters won’t be necessary.

And you’re correct that the ACT government has been one of the major problems in the past with regards to land release but they have been getting better and hopefully the switch to a broad based land tax will improve them even further over time.

tim_c 8:36 am 11 Oct 13

arescarti42 said :

tim_c said :

Dilandach said :

“Weep oh renters for the financial losses of the investment property owners!”

When they get rid of negative gearing, I might shed a tear or two. Most likely tears of joy.

Yeah, because removing the incentives for people to rent out homes will help with rental vacancies, won’t it?

The way to improve the rental vacancy rate is to build more rental dwellings. The overwhelming majority (90%+) of negatively geared investors invest in existing dwellings, not new ones. If those investors aren’t increasing the supply of dwellings, then all they’re doing is pushing up prices and out competing potential home owners, forcing them on to the rental market.

So really negative gearing does sweet FA for rental vacancy or affordability, reduces the rate of home ownership, artificially pushes up prices, and costs non-negatively geared tax payers about $5.5 billion a year in subsidies.

It is the epitome of failed government policies.

So what if investors are buying existing homes rather than new – if more homes are bought by investors, there will be more available for rent. If all the existing homes are bought by owner-occupiers, none of them will be available for renting.

Astute investors aren’t going to buy properties they can’t easily rent, so they’re not just going to be buying new places just to increase the supply of dwellings – they’re not charities (otherwise it wouldn’t be called “investment”)! Interestingly, the Manhattan project (recently completed on Akuna St) supplied some 330 new dwellings, approximately 90% of which were bought by investors…so much for investors always only buying existing residences!

The ACT Gov’t has been one of the major contributors to the lack of housing supply in Canberra through policies such as excessive taxes including the change-of-use tax as well as the process for holding/releasing land for new development.

milkman 6:32 am 11 Oct 13

arescarti42 said :

This doesn’t take in to account a couple of things
1. Taxing land value puts a high opportunity cost on speculation and land banking by developers, which would help increase the supply of land and put it to better use (imagine if the owners of those disused suburban petrol stations in high value locations around Canberra were forced to pay considerable tax on the value of that land. It’d be a pretty good incentive to put it to a higher value use. Same goes for the large number of houses which the census found are being kept vacant).
2. Land values are likely to drop to reflect the future tax liability, offsetting it.
3. Like for like, if you’re raising the same amount of tax from a land tax as you were from stamp duty, over the same period, then it actually works out better for new buyers as they don’t have to take out a loan to pay the tax, and thus don’t have to pay interest on it.

The elephant in the room, though, is that land tax encourages short term property speculation (ie flipping).

If I don’t have to pay stamp duty then my cost of transacting is much smaller, therefore it makes buying a run down property, renovating then reselling for a higher price much more viable. I just have to run some numbers on whether it’s better to pay non-discounted CGT or wear a year’s land tax (which is levied only on the land, not the improved value of the overall property). It also improves the viability of a know-down and rebuild with units.

I’ve got no problem with making changes to improve things, just be careful what you wish for.

Anyway, I figure you’d be pretty happy with the state of the property markeet, now rents have come off and prices have fallen in real terms. Now is the best time in years to be buying or renting in Canberra, I wonder how long it will last?

2604 9:44 pm 10 Oct 13

arescarti42 said :

Actually looking at the SQM vacancy data, Canberra now has the highest vacancy rate of any capital city in Australia except Melbourne, which is pretty incredible when you look at how low the vacancy rate was up until about 2008.

Not surprising though when you look at all of the supply which has come on stream recently.

I sometimes wonder who is going to live in all the 1 & 2 bedroom apartments which are either planned or have been built in the past couple of years in Belconnen. The cap rate on those places must be absolutely miniscule…

arescarti42 8:44 pm 10 Oct 13

Actually looking at the SQM vacancy data, Canberra now has the highest vacancy rate of any capital city in Australia except Melbourne, which is pretty incredible when you look at how low the vacancy rate was up until about 2008.

arescarti42 8:40 pm 10 Oct 13

Those interested should also check out the data from SQM research on this

Rents on both houses and units have been falling steadily since about January. Over the year to October, rents on houses have fallen by 6.4%, rents on units have fallen by 7.8%.

Rents on houses are now only 0.2% above what they were three years ago, and rents on units are 1.5% below what they were three years ago. Of course inflation was about 8% over that period, so falls in real, inflation adjusted terms are much higher.

The rental vacancy rate has also doubled since the beginning of the year, from about 1% to 2%, and rising.

arescarti42 8:26 pm 10 Oct 13

wildturkeycanoe said :

Wow! An amazing 3.5% drop! I bet some of those families out there looking for somewhere to live will be ecstatic over this news…NOT.

Well it sure beats the consistent rises that have been the norm in Canberra for many years.

wildturkeycanoe said :

Whilst the figures for September might have dropped, they will inevitably rise again in the next month or so as university students and the like will start looking for accommodation for next year’s studies. One month’s figures alone do not show a trend, the same as this year’s rainfall doesn’t prove global warming.

First of all, it’s for the September quarter, so not just one month. And second, these falls come on the back of falls in the previous quarter.

JimCharles said :

I’d think it was far more than 3.6% overall, I know of three renters over the last 6 months who’ve negotiated drops of between 10-15 %.

It’s 3.6% over the months to September, which is quite a lot over only 3 months.

milkman said :

Of course investors don’t buy new dwellings – they costs a fortune, the locations frequently suck and demand is fickle.

Precisely. My point is investors investing in existing housing does nothing for rental vacancies or affordability.

milkman said :

Bear in mind, though, that if we go levying big chunks of land tax, there will be even less incentive for people to build new dwellings. The decision to rent or buy will will be swung, for some people, buy that land tax issue. At least stamp duty can be borrowed (at least in part).

This doesn’t take in to account a couple of things
1. Taxing land value puts a high opportunity cost on speculation and land banking by developers, which would help increase the supply of land and put it to better use (imagine if the owners of those disused suburban petrol stations in high value locations around Canberra were forced to pay considerable tax on the value of that land. It’d be a pretty good incentive to put it to a higher value use. Same goes for the large number of houses which the census found are being kept vacant).
2. Land values are likely to drop to reflect the future tax liability, offsetting it.
3. Like for like, if you’re raising the same amount of tax from a land tax as you were from stamp duty, over the same period, then it actually works out better for new buyers as they don’t have to take out a loan to pay the tax, and thus don’t have to pay interest on it.

milkman 6:04 pm 10 Oct 13

arescarti42 said :

tim_c said :

Dilandach said :

“Weep oh renters for the financial losses of the investment property owners!”

When they get rid of negative gearing, I might shed a tear or two. Most likely tears of joy.

Yeah, because removing the incentives for people to rent out homes will help with rental vacancies, won’t it?

The way to improve the rental vacancy rate is to build more rental dwellings. The overwhelming majority (90%+) of negatively geared investors invest in existing dwellings, not new ones. If those investors aren’t increasing the supply of dwellings, then all they’re doing is pushing up prices and out competing potential home owners, forcing them on to the rental market.

So really negative gearing does sweet FA for rental vacancy or affordability, reduces the rate of home ownership, artificially pushes up prices, and costs non-negatively geared tax payers about $5.5 billion a year in subsidies.

It is the epitome of failed government policies.

Of course investors don’t buy new dwellings – they costs a fortune, the locations frequently suck and demand is fickle.

Bear in mind, though, that if we go levying big chunks of land tax, there will be even less incentive for people to build new dwellings. The decision to rent or buy will will be swung, for some people, buy that land tax issue. At least stamp duty can be borrowed (at least in part).

MissChief 5:31 pm 10 Oct 13

Beware of statistics and the people who use them.

Median price is the middle of the range with highest and lowest prices removed and it does not necessarily compare like with like. It could be that the median this quarter is less because there are more 3 bedroom houses than 4 bedroom houses being listed, or that the quality/inclusions are less. The same goes for units.

I’d be more accepting of the figures if the article said “median asking rents for similar houses in Canberra

JimCharles 4:57 pm 10 Oct 13

I’d think it was far more than 3.6% overall, I know of three renters over the last 6 months who’ve negotiated drops of between 10-15 %.
Another couldn’t get maintenance out of his landlord so moved to a far superior property for the same price. The original property hasn’t let since, has dropped the price from $630 to $550 and is only just now sending in insulators, painters, window repairers, gardeners.

The drop is probably smaller for attractive, well maintained, ebergy efficient properties…but some of these hovels that you wouldn’t keep a dog in have been sitting empty for months.
Landlords have been used to people fighting at the door with completed rental applications, they hadn’t needed to do any maintenance when the market undersupply around 2011/2012 meant that people would take anything out of desperation and even offered above the asking price. Now they are being forced into improvements, which is a good thing for the habitation standard.

Some of these new apartment viewings are having NOBODY attend and there are fabulous rental deals to be had. I guess there might be some great sales bargains coming up if the investment properties are not paying for themselves ?

MrBigEars 4:24 pm 10 Oct 13

When we first moved to the Can, real estate agents told us to offer more than the listed rent to secure a house. I hope landlords are now offering less to secure a tenant.

Deref 3:42 pm 10 Oct 13

It’s bugger all, but I suppose it’s a start.

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