Renters are facing a tough road ahead as rental prices are forecasted to continue climbing for the next two years. This upward trend is primarily driven by delays in new home construction and the increasing demand for housing. The sluggish approval process for new home builds in Australia’s most populous states, New South Wales and Victoria, is a significant factor contributing to this issue. According to the latest analysis from the Federal Treasury, Victoria takes an average of 144 days to approve new developments, while New South Wales follows closely at 114 days. These extended timelines result in more red tape and fewer homes available for both renters and buyers, exacerbating the housing shortage.
This inefficiency in the approval process has positioned Australia poorly on the global stage. Among the 33 OECD countries, Australia ranks 23rd for the number of homes per 1,000 people, highlighting a critical underperformance in housing construction compared to other wealthy nations. The lack of sufficient housing supply continues to drive rental prices higher, putting additional financial strain on renters.
The limited availability of homes is also evident in recent auction results. Despite entering the traditionally slow winter season, the housing market showed resilience over the weekend. According to CoreLogic, preliminary auction clearance rates stood at 71.5%, with over 2,000 homes going under the hammer. Most of these homes were quickly sold, reflecting the high demand and competitive nature of the current market.
An increase in rental prices can have several effects on new home buyers and investors:
- Affordability Issues:As rental prices rise, potential home buyers may struggle to save for a deposit due to higher living costs. This can delay their ability to enter the housing market.
- Increased Demand for Purchases: Higher rental costs may push more individuals to consider buying homes rather than renting, increasing demand in the housing market and potentially driving up home prices.
- Competitive Market: With more people looking to buy instead of rent, the competition for available homes intensifies, making it harder for first-time buyers to secure properties.
- Higher Rental Yields: Rising rental prices can lead to higher rental yields for property investors, making real estate investment more attractive.
- Increased Property Values: As demand for both rental properties and homes to purchase increases, property values are likely to rise, benefiting investors through capital appreciation.
- Market Entry: The prospect of higher returns might attract more investors to the market, increasing competition for investment properties and potentially driving prices up further.
What Is Being Done to Address This?
The combination of slow development approvals, low home-building rates, and strong demand suggests that renters will continue to face financial challenges. As rental prices are poised to soar further, the need for streamlined approval processes and increased housing construction becomes more urgent. Addressing these issues is crucial for alleviating the pressure on renters and ensuring a more balanced and accessible housing market in the future. Steps are being taken to improve the efficiency of development approvals and to increase the rate of home construction, but significant progress is needed to meet the growing demand and to stabilize rental prices.
Reference: https://www.youtube.com/watch?v=FbM3zXiRyT4
