Housing rental is one of the many sectors in Australia that’s been pummelled by the COVID-19 pandemic.
For the better part of 2020, rental prices have been plummeting, and while rents and yields are down around the country, inner-city suburbs have been the worst-hit.
The battering received by Australia’s housing rental market has been mainly because of three factors related to COVID. They include:
● The loss of income and jobs in sectors with workers more likely to rent rather than own homes
● A decreased demand for rental properties from new migrants due to border closures
● An increased number of homes available for long-term rental because of the travel market’s massive slump
The combination of income and job losses and a decrease in migrant workers looking for home rentals hit the market particularly hard in Hobart, Melbourne, and Sydney. The first two cities each had 5 suburbs named among the top 20 city suburbs where rents plunged. The remaining 10 suburbs were in Sydney.
A report from property information specialists CoreLogic showed that the greatest rent-drop (7.2%) happened in Sydney’s Haymarket suburb between March and May. Rents in Barangaroo at the southern end of the harbour bridge dropped by 7% during the same period, as did those in Melbourne’s Southbank suburb.
Both cities’ CBDs saw rents fall by 6.9%. Sydney’s median weekly rent for dwellings dipped by 1.3% to $525, while the weekly rent for units dropped by 2.5% to $525. Melbourne’s weekly dwelling rents decreased by 1% to $440, while unit rents fell by 2% to $440. The combined capitals’ median weekly rent saw a 0.7% decrease to $460.
CoreLogic’s report also highlighted the fact that Sydney’s gross rental yields dipped by 0.6% in the 12 months to June. Those in Melbourne dipped by 0.5% in the same period, and the combined capitals’ rental yields decreased by 0.5%.
Rental drops pose risks for investors
In the report, Head of Research for Australia Eliza Owen said that property values and rental values were likely to decrease alongside one another. This means that inner-city unit markets are not without particular risks for investors.
Commenting on the impact on Melbourne and Sydney, Owen explained that the sudden increase in rental supply has various implications. Among them is additional settlement risk for nearly-complete off-the-plan purchases, the decrease in rental yields, and pressurised purchase values.
However, it wasn’t entirely bad news.
Owen pointed out that one of the few positives of the effect of COVID-19 on housing rentals was options of cheaper accommodation nearer to the cities. This gave those hoping to be closer work or inner-city amenities an opportunity to move that they may never have had otherwise.
Rise in rental listings
Quoted by an Australian property website, University of Queensland Business School’s real estate and development discipline leader Dr John Sturgeon said more properties were being listed for rent. He explained that the increase was because of a lack of demand for short-term holiday rentals and student accommodation due to economic changes.
The site’s data published in May revealed that Australia saw an 8% increase in rental listings for the same period in 2019. The findings were echoed by the CoreLogic report, which found that the number of rental listings in Melbourne increased by 3,730, while those in Sydney increased by 1,043.
In its article, the site also quoted economist Dr Diaswati Mardiasmo regarding the increase in rental listings. She explained that the oversupply of listings in areas mainly reliant on tourism and education was a sign that those markets were impacted heavily by factors related to the pandemic.
Mardiasmo added that impact varied from market to market as it depended on local economic infrastructures and the relief the government offered to renters. Still, whether markets are impacted significantly or only slightly, the current climate is one where investors need to be alert.
Falling rental markets and investors
In light of the current status of the Australian home rental market, CoreLogic’s Head of Research for Australia predicted that home construction and prices could take a dip too. This would be due to the influence of the market’s conditions on investor demand.
Owen explained that many Australians used their life savings to invest in property, hoping to see their wealth grow. The everyday person would now think twice about investing in a market that currently shows few upward trends.
While investor jitters are understandable, they’re sometimes unnecessary. If you’re an investor, you may not be hit too hard by the slump if your property has a fair amount of equity, your income is steady, and you’re prepared to ride it out. Property investment is usually a long-term commitment, and highs and lows are to be expected. But this doesn’t mean the lows are always easy to ride out, and for those with rental investments, the long-term outlook on COVID-19 may look rather bleak.
Investors whose properties are in areas badly hit by the rental market slump or whose tenants requested reductions may well be facing mortgage stress. However, many of the banks have recognised the impact of COVID-19 and offered relief in the form of payment holidays or reduced interest rates. Refinancing of mortgages is also an option, although not recommended unless absolutely necessary. With refinancing options come longer repayment terms and higher interest and costs.
It’s not just the banks who are offering a respite from pandemic-related rental issues. Most states have announced land tax relief measures to support landlords and companies that offer landlord insurance have offered to reduce premiums if tenants cannot meet their obligations.
Unfortunately, regardless of assistance from all corners, there’s no quick and easy fix for the rental market in Australia. Things will improve as lockdown regulations ease, industries get back on their feet, employment opportunities become available, and migrant workers arrive.
Until then, it’s going to take tenacity on the part of property owners and renters to see this through.