If I was a gambling man I’d put money on the likelihood of what I’m about to share.
Before I make my forecast, please let me explain why I currently can’t see any other option.
I’m really surprised that we are not hearing more about the alarming shortage of rental properties many of our regional markets are currently experiencing. Of course we do hear about the shortage of rental properties, and the rush by buyers to homes as they flood out of our biggest cities and relocate to our most popular regional locations, but I don’t think most Australians understand how dire this situation really is.
Families sleeping in cars
Over the next few months we will see many more news stories featuring distressing stories of homeless Australians sleeping in cars, simply unable to find a property to rent. Communities will band together in protest as local residents are seemingly ‘pushed out of the market’ by ‘cashed up’ families moving into these postcodes.
We’ve seen this play out many times before. Small sleepy communities can quickly become trendy and then overnight the property market starts to skyrocket.
When these communities enter this new chapter locals residents can quickly find themselves facing the almost impossible task of keeping up financially. Local house prices and the cost to rent may seem very affordable to those relocating, but to some locals even a 10% rise in property prices or rents can see them ‘locked out of the market’.
Ticking ‘time bomb’
Countless families that are currently renting a property in these communities now find themselves facing a ticking ‘time bomb’.
One couple I spoke to this week described their situation where they were looking down the barrel of a very likely, huge adjustment to their weekly rent when their lease expires in just a few months. When they secured their current lease the uncertainty around COVID-19 had created an ideal window for tenants to negotiate comfortable rental terms. They were able to secure their current property at $450/wk but in recent weeks they have seen identical properties within the same small townhouse complex achieve $650/wk and $700/wk.
This couple now faces an almost certain path, resulting in sleepless nights and the growing realisation that continuing to rent in this postcode is simply unaffordable. And they are not on their own. This same community is now seeing locals unable to renew their leases due to an inability to afford rising rents.
Being ‘cashed up’ is no guarantee of success
Whilst affordability is a rapidly rising issue for many local residents, countless others with the ability afford these rental amounts are simply unable to secure a property.
Dozens of high quality rental applications are often received for each property, leaving most people unsuccessful. Many communities are experiencing historic low rental vacancy rates, and whilst this is great news for Landlords, it would be unfair to not consider the families that impacted by this housing undersupply crisis.
Did we ‘over-stimulate’ the housing market?
The Australian Federal Government decided many years ago that they were not going to supply housing. Instead, they have continued to offers incentives for Australian tax payers to invest in the supply of Australia’s rental housing. This has seen our national property market become our most important national asset, with more wealth held in property than any other asset class.
The Governments commitment to support our housing market, and the importance of it’s performance, was highlighted during COVID-19 via incentives aimed to support and stimulate various aspects of this vital industry. The Government, along with the RBA and our big four Banks, provided a range of measures that has seen our national property markets rebound more confidently than almost anyone could have imagined.
So, with current forecasts of 30% growth to housing values over the next 3 years, has we now over-stimulated Australia’s housing market?
That’s a hard question to answer. The fact that stimulus packages were made available so quickly and what we were facing was totally unprecedented, stimulus packages had to be very broad. The Government tried to pass strategic benefits to as many Australians as possible, without looking like they were only supporting small section of the population. This has helped ‘prop up’ markets that needed support, but has also created drastically accelerated growth in markets that were already positioned for strong growth (such as our key Regional markets).
The RBA has already made comments around their comfort in maintaining low interest rates over the coming years. This comfort comes from their belief that most capital growth will be experienced in our regional cities, not Sydney and Melbourne. This regional growth will result in see our median house values rise nationally without dramatically inflating property prices in postcodes that are of most concern.
My 2021 forecast: Rental Housing Rescue Plan
I believe the Government will already be planning the next wave of Government spending. I cant see any other option but to focus quickly on increasing the supply of rental properties in areas experiencing crisis levels of undersupply.
I’ve looked at this issue from every angle and believe the only option is to supply an incentive for investors to supply housing. An increase in supply levels will take the heat out of rapidly rising rents, plus ensure more Australian families have a roof over their heads.
Whilst I haven’t seen anything to support the idea of an incentive being offered to property investors in 2021, I strongly suggest Investors prepare themselves ASAP.
The speed and popularity of our current regional hotspots is already catching investors totally unaware. Most investors attempting to purchase are quickly realising the face enormous, unexpected challenges. Any news around the Government pivoting their focus from offering incentives to ‘Home Builders’, to instead offering these same incentives to ‘Property Investors’ will only make access to these undersupplied markets much harder.