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Rental prices falling

By 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!

What’s Your opinion?


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25 Responses to
Rental prices falling
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.

wildturkeycanoe 3:37 pm 10 Oct 13

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. 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.

arescarti42 3:29 pm 10 Oct 13

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.

tim_c 2:52 pm 10 Oct 13

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?

tuco 1:26 pm 10 Oct 13

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.

It’s going to feel like eating rocks for you to learn that the (newly positive geared) investment rental properties are now paying for the (expanded) margin loan. For some.

Dilandach 1:04 pm 10 Oct 13

“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.

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