The massive shortage of rental housing supply and the potential for higher migration has created a landlords’ market that may prove attractive to property investors.
Property prices are widely tipped to return to a growth phase in the medium-term.
Media reports out of Sydney have shown lines of people snaking around the block waiting to view rental properties.
It serves to highlight the massive shortage of rental housing supply and the potential for investors looking for strong rental yields.
For those who are ready to expand their property investment portfolios, the rental crisis presents an unprecedented opportunity to invest.
Building approvals have nosedived for the third month in a row and the implications for the residential rental market and construction sector are severe.
Demand will inevitably continue to grow in 2023, with international migration picking up again and a growing call for further increases to the migration intake to deal with the workforce shortages.
A record 4.3 million visas were processed in the last seven months of 2022, a number anticipated to grow significantly throughout the years ahead.
At the same time, the Australian Bureau of Statistics reports that 40,000 people are arriving in Australia each month for migration purposes.
There were just 1,000 to 2,000 people arriving in Australia each month throughout all of 2020 and 2021.
At the same time, there is a critical undersupply of housing. The national vacancy rate is 0.9 per cent, the lowest it has been for more than two decades, and well below the 2 to 3 per cent considered a balanced market for landlords and tenants.
In the short term, this will put more pressure on an already struggling rental market. In the medium to long term, we will see another run on house prices.
Act early to maximise investments
While many investors are paralysed by the changing interest rates, some of the best opportunities present without the usual competition.
Across Australia, rents are going up fast. Brisbane recorded an average increase of 13.4 per cent, Perth’s vacancy rate is at a 40-year low and is up 10.5 per cent and Adelaide saw an average rental increase of 10.5 per cent.
Welcome another 40,000 people into the country each month, and it’s hard to see those numbers slowing down any time soon.
The same numbers will eventually cause values to spike, as most migrants settle into a new country and rent for the first 12 to 24 months.
While there has been a fall in home values nationally of 8.4 per cent, affordable and regional property values have been relatively immune and in some cases have defied the national trend due to exploding population growth in new development areas.
Affordable areas with growing populations now and into the future are the best bet for right now.
Queensland’s south east on investment radar
Coomera, an area halfway between Brisbane and the Gold Coast is one such hotspot for investment, with a population of 25,000 set to grow to more than 95,000 in the next 15 to 20 years.
Unlike the national numbers, values in affordable suburbs like Coomera are up on the same time last year, and rents are up a staggering 20 per cent year-on-year, such is the rate of population growth.
Nationally, the value of residential properties is still 16.0 per cent higher than five years ago, and that is despite Covid bringing migration to a halt for nearly three years.
Of course, you should always take a long-term view when making any investment, particularly property. However, another run in the housing market sometime during 2023 and 2024 is feasible if not likely.
It is reminiscent of the early days of Covid in 2020, when there were two distinct reactions by property investors to the looming pandemic – those who stopped in their tracks, and even sold down property for fear of what would come, and those who saw the opportunity, looked around the corner, and came up trumps.
Most people won’t act on the opportunity in front of them. There’s a reason less than 1 in 1,000 Australians own 4 or more investment properties. It’s not easy to look past the doom and gloom and focus on what the numbers are telling us.
It all shapes up to be a golden opportunity for property investors in 2023 who have the right advisors by their side.
Author: James Fitzgerald, Managing Director of JLF Group
