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Will Canberra rent prices fall in the next year or so?

junketFunket 23 January 2012 32

I’ve noticed that there are a lot of new apartments springing up all around Canberra. Seen heaps in Bruce but in the city, in tuggeranong, in Dickson, there just seems to be new apartment blocks being built.

There’s also like 5 new suburbs in Gungalin and also the new Molongo suburbs.

Surely, Canberra’s population can’t be growing that fast can it? What with the high AUD scaring off oversea students and the efficiency dividend putting a cap on APS numbers.

So been renting in Canberra for the past 7 years. The rent increases seem to be crazy! It now costs like $350 for a cramp, run down 1 bedroom unit! I just don’t understand what person who can afford that amount of rent would want to live in a place like that??

So I was wondering, with all these apartments going online in the near future,  is it possible for rent prices to fall? Has that and does that ever happen in Canberra? Should I be negotiating a rent price drop? The laws of supply and demand tell me that it should, but in my short history of renting, it feels like every year, the rent keeps going up, up and up. 🙁


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32 Responses to Will Canberra rent prices fall in the next year or so?
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poetix 4:58 pm 07 Feb 12

devils_advocate said :

MissChief said :

If you bought a house recently a $500k mortgage is approx $875 per week. The rental return on that house is $550 per week and you dont have to pay $3000 per year in rates and land tax $1000 in insurance $1000 in water supply or maintenance. So you can buy OR you can rent and save over $400 per week for your own place.

You don’t pay land tax if you are living in it yourself. Insurance doesn’t cost that much. Maintenance depends on how much you tend to pay others to do things for you. Doing the short-term cash flow analysis will never support what is a very long-term financial decision.

This is morphing into affordability. Scream.

devils_advocate 4:45 pm 07 Feb 12

MissChief said :

If you bought a house recently a $500k mortgage is approx $875 per week. The rental return on that house is $550 per week and you dont have to pay $3000 per year in rates and land tax $1000 in insurance $1000 in water supply or maintenance. So you can buy OR you can rent and save over $400 per week for your own place.

You don’t pay land tax if you are living in it yourself. Insurance doesn’t cost that much. Maintenance depends on how much you tend to pay others to do things for you. Doing the short-term cash flow analysis will never support what is a very long-term financial decision.

NoImRight 4:28 pm 07 Feb 12

I understand teh motives behind it but Im not sure your proposed “good idea” is that good. You plan to tax every homeowner on a non cash unrealised profit every year? Are you happy to pay tax on the “profit” youve made on your own property? If your property goes down in value do you expect a refund? Who would decide these figures?

Wouldnt this just add to the clamour over houses being unaffordable? There might be an initial adjustment but in a few years time we would be back to where we are with people just paying extra tax.

Despite some peoples hopes houses are part of a more complex system and there isnt a magic wand that will fix things with one stroke. Most “solutions” offered seem to ignore the flow on from any attempt to interfere with house prices. That includes the current ones being tried ;-(

konazz 3:20 pm 07 Feb 12

While there’s a lot of ‘economic’ arguments of renting v buying, you can’t put a price on ‘not being kicked out by a landlord’ or ‘no quarterly inspections’ or ‘no open homes’ (towards the end of a rental agreement).

Economically, I think renting and saving in the short term is good (5-10 years), but eventually, when you have enough $$$, buying might become a better option.

I recently read a good idea, to slow down the property market (not crash) is to start taxing all residential gains @ marginal tax rates, for say those holding a property for 3/4/5 years (whatever). This includes removing the capital gains tax main residence exemption during those times (unless there are mitigating circumstances like job or children or something). This would stop people investing in the property market to make a quick buck (we bought our home back in 2009 off-the-plan, and only moved in 3 months ago – when we went to settle, the house was worth $40k more than we bought it for, not to mention the healthy stamp duty concession and $21k FHOG!). We plan to live in ours for a while, but you watch – 6 months after any stage of a development is settled, Allhomes listings go through the roof!

I personally think Canberra is far too volatile in house prices – small Govnt policy changes can have huge impacts on the population of Canberra. On top of that, oversupply here is a real risk if you’re planning on making a gain. With such a small population, the balance between supply and demand needs to be carefully monitored. the ACT government has shown time and time again how inept it is at making basic planning decisions (WTF – stop building at the end of the world), delivering infrastructure projects on time (GDE, hospitals, etc.) what makes you think they’ll know when to pull back a bit when they need to. This government is more addicted to Stamp Duty, then Tony Abbot being a ‘No’ man. If you think oversupply can’t happen – look at Melbourne’s apartment market? Thats a city of 4-5m people… we only have 350k at best. If the Victorian Government can get the balance wrong, then what hope do we have?

Interestingly, one of the things that MIGHT keep up rent/house prices are the new HECS rules… where ANU and UC can offer as many places as they want. This will be the first year, so interesting to see how it affects the major capitals vs the regional (inc. canberra) universities

To answer your question – short term: no (nothing material), medium term: efficiency dividend biting into next years budget (our grad intake is 1/3 of last years), Tony “Julia/NBN/nice person/APS crusher, over supply = quite possible rental drops.

Jethro 7:28 pm 24 Jan 12

justsomeaussie said :

It all sounds so logical just to buy, but gone are 97%-99% loans (and so they should be). So where is that $55,000 – $100,000 coming from for a deposit for your 450k house? I’m lucky because I’m young (low 30s) and had a cash injection along with savings to get a deposit after living in a share house for 4 years. But I do feel for the average single person, paying high rent and trying to save.

The baby boomers always forget they could afford their first home on a single wage and have capitalised that to buy up multiple properties now to make everything unaffordable for the younger generations.

Without a doubt this is true. My original comment obviously only applies to those with the means to raise the money for a deposit, stamp duty, fees, etc. I’ve been following the argument on the ‘affordability’ thread, and don’t get those who seem to be arguing that people complaining about the cost of housing have no reason to do so.

My parents bought their first house (albeit a crappy one in the outer suburbs) on my dad’s single income (with mum staying at home with us). Dad had a year 10 certificate and did process work in a factory. I can’t see that happening now. Still, I do think that if you have the means to buy, it is the best bet, because even though house prices are ridiculously high, so are rents. While short and even medium term outlooks for capital gains and large increases in the cost of rent are fairly low, the long term picture is that rents will continue to rise and property will remain a valuable asset.

MissChief said :

If you bought a house recently a $500k mortgage is approx $875 per week. The rental return on that house is $550 per week and you dont have to pay $3000 per year in rates and land tax $1000 in insurance $1000 in water supply or maintenance.

Also true. I think the price differential between paying off a mortgage and renting drops as you move into the cheaper areas. Renting a 3 beddie in outer-Belco will set you back about 400 a week, while buying one in the same area will set you back maybe 500-550 a week. Obviously you then have other overheads to worry about, like rates, maintenance, etc.

Still a bit of a difference, but one that will reduce in the long term as rents continue to rise but your mortgage payments stay the same. Plus, if you make use of your rising income you can pay the mortgage down much faster than 25 years, easily in 15, even in 10 or less if you have two incomes and really put your mind to it. After that you have virtually zero housing costs (again with the exception of overheads like rates and maintenance) plus you have an asset.

If you pay your home off by the time your 45 you have a good 20 years of earning in front of you in which the majority of your income, which would otherwise be going on rent, can be invested in other things.

Again, I’ve heard some good arguments against buying, but to me, this seems to make the most financial sense.

VYBerlinaV8_is_back 4:04 pm 24 Jan 12

arescarti42 said :

There is certainly something odd about a granny flat in Chapman renting for the same price as a modern 1 bedroom apartment in Civic though.

Agreed – that’s not even close to a representative rent for that type of property in that location.

arescarti42 3:02 pm 24 Jan 12

dpm said :

arescarti42 said :

I suspect that $450 probably was referring to the house as well as the granny flat, allhomes returns multiple 3 bedrooms houses in Weston Creek for that price. Either that or the RE agent/owner was lying.

Have a look for yourself:
http://www.allhomes.com.au/ah/act/sale-residential/28-beaumont-close-chapman-canberra/1316811106211

Well I stand corrected, the ad clearly indicates that it is the flat being rented at that price.

There is certainly something odd about a granny flat in Chapman renting for the same price as a modern 1 bedroom apartment in Civic though.

devils_advocate 1:46 pm 24 Jan 12

watto23 said :

The other thing is many of the rentals were purchased at over inflated purchase prices, so the only way a landlord will drop the rental rate is because they absolutely have to. There are a lot of overcapitalised landlords going around and they just can’t afford a cut in rental rates, unless no one is living in them.

Also the prices are sticky, because rental agreements are typically entered into for 12 months at a time. While it is true that agreements are expiring every day, it takes a while for these to feed into market expectations. By contrast house prices can move quickly because the individual transactions are one off capital amounts and also there’s probably greater visibility (if not accuracy vis asking vs selling price) in the price signals.

watto23 1:32 pm 24 Jan 12

The other thing is many of the rentals were purchased at over inflated purchase prices, so the only way a landlord will drop the rental rate is because they absolutely have to. There are a lot of overcapitalised landlords going around and they just can’t afford a cut in rental rates, unless no one is living in them.

VYBerlinaV8_is_back 9:06 am 24 Jan 12

I rented three two bedroom units that I renovated, 15 mins drive from the city, for $320 a week each. They are old but large, and have brand new bathrooms, kitchens, carpet, curtains, and have just been repainted.

Decent cheaper properties are out there, but you do have to be quick.

dpm 9:02 am 24 Jan 12

arescarti42 said :

I suspect that $450 probably was referring to the house as well as the granny flat, allhomes returns multiple 3 bedrooms houses in Weston Creek for that price. Either that or the RE agent/owner was lying.

Have a look for yourself:
http://www.allhomes.com.au/ah/act/sale-residential/28-beaumont-close-chapman-canberra/1316811106211

I’m no Sherlock, but at that house size, location and price (and by the wording of the ad) I think it’s fair to say it’s for the flat only. I’m not saying this price is the norm, or there isn’t some sort of dodgy family tax dodge/agreement going on here, or perhaps it is rented as office space that costs more? I was simply showing what I saw on allhomes as one seemingly-extreme example (I wouldn’t have noticed it if it didn’t stand out so much).
Anyway, while the RE is probably lying (don’t they always?), I can’t comment any further on it. But you are now able to ring them to clarify, if you need your curiosity sated! 🙂

Grail 8:28 am 24 Jan 12

Don’t worry junketFunket, the moment rental prices drop to the level that a EL1 with a $60k salary sacrificed car can afford to move into a 4br place by themselves, they’ll do so. Then the 3br place they were in will get leased out to the fool currently solo-occupying a 2br place, so that 2br place will become available for you at the rate the previous tenant was paying.

The vacancy rate will have to go up for several months before landlords will start reducing the rental rates.

In the meantime, ways you can reduce the rent you’re looking at paying are: search allhomes.com, make sure you’re looking all over and not just central or inner North, and be prepared to accept that some rental properties are more than five years old, so the interior decorating may not be to your liking.

Apologies if I sound a little hostile, but we’ve had people complaining to us that it’s “impossible” to find a place to rent on an EL1 salary in Canberra. This may be true if you’re paying off a $60k car that you didn’t have any cash for, and you’re paying child support to an ex, etc, and you’re determined to only solo-occupy houses with more than 2 bedrooms just to show how “rich” you are.

There are over 100 rental properties listed on allhomes.com in Canberra for under $350/wk, many of them look quite reasonable to my eyes. Then again, I like Paisley and Björk.

arescarti42 12:53 am 24 Jan 12

urgh, that should be “rents in Canberra dropped by 2.1% for houses and 2.3% for units”. Evidently I need to proofread more than once at this time of day.

arescarti42 12:51 am 24 Jan 12

The most recent APM Rental report (September 2011) showed that over the September quarter, rents in Canberra dropped by 2.1% for houses and 2.3% (although they are up over the year as a whole, so the down trend looks to be a pretty recent thing).

http://www.domain.com.au/content/files/apm/reports/APM-September-RentalReport-FINAL.pdf

Just anecdotally, I’m currently trying to rent a small 2-3 bedroom place, at one inspection I attended just before Christmas, I was the only person who turned up. I asked the agent if it was atypical, and she said that not many people had been coming to inspections recently. It can’t be that hard to find suitable tenants though, I’ve not found anyone willing to rent their place to me yet (student, no rental history and irregular income).

As for renting vs buying, at the moment, for equivalent properties, it is still much cheaper to rent. According to the ATO, in 08-09, 66% of investment properties were negatively geared, so by definition, the costs of ownership were higher than the market rent for those properties. The 33% that are cash flow positive would mostly be the people who have owned their properties for a long time and have paid off most of their mortgage.

dpm said :

I saw a home for sale on Allhomes on the weekend (in Weston Creek) that has a 1 bed granny flat attached that is currently rented for $450pw! And that was without a proper kitchen (it had a sink, plus microwave, grill ‘thingy’ and fridge in the photo – no oven, dishwasher or cupboard space!). WTF?!?!

I suspect that $450 probably was referring to the house as well as the granny flat, allhomes returns multiple 3 bedrooms houses in Weston Creek for that price. Either that or the RE agent/owner was lying.

The people per dwelling argument is an interesting one. Households are actually quite dynamic, and the US experience says they are actually fairly sensitive to the economic climate. When things got tough in the US, people per dwelling actually increased (kids delaying leaving home to form their own households, sharing with friends/group housing etc. become an attractive way to reduce costs).

yellowsnow 11:47 pm 23 Jan 12

the answer: no

rents may plateau but decline? no way.

MissChief 10:42 pm 23 Jan 12

If you bought a house recently a $500k mortgage is approx $875 per week. The rental return on that house is $550 per week and you dont have to pay $3000 per year in rates and land tax $1000 in insurance $1000 in water supply or maintenance. So you can buy OR you can rent and save over $400 per week for your own place.

PantsMan 10:22 pm 23 Jan 12

shauno said :

Dont think so. Not with the labor green climate scare departments growing.

My only fear is that Tony Abbott won’t be extreme enough and not cut hard enough.

shauno 8:15 pm 23 Jan 12

Dont think so. Not with the labor green climate scare departments growing.

el 7:37 pm 23 Jan 12

Jethro said :

450 for a 1 bedroom granny flat in Weston?

650 for a house in Melba?

If there’s an economic argument for buying, there it is.

+1.

To the OP:

Is it possible for rents to drop? Yes, in theory.

Will they drop in Canberra? No. Kthxbi.

justsomeaussie 7:26 pm 23 Jan 12

It all sounds so logical just to buy, but gone are 97%-99% loans (and so they should be). So where is that $55,000 – $100,000 coming from for a deposit for your 450k house? I’m lucky because I’m young (low 30s) and had a cash injection along with savings to get a deposit after living in a share house for 4 years. But I do feel for the average single person, paying high rent and trying to save.

The baby boomers always forget they could afford their first home on a single wage and have capitalised that to buy up multiple properties now to make everything unaffordable for the younger generations.

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