Rental Prices Tipped To Soar

Craig Binnie From: Herald Sun November 06, 2009 9:20PM

High house prices are keeping many people in the rental market.

PROPERTY investors are set to profit from a rental boom that will send rents soaring to a record high, new research shows.

Soaring property prices are forcing thousands of once-hopeful first home buyers to give up their home ownership dreams and beg their landlords for longer leases.

And the surge in renters is expected to worsen as rising interest rates and a lower first home owner’s grant forces more potential buyers out of the market.

New figures from research company RP Data show Melbourne has a shortage of rental properties and many tenants are struggling to find suitable accommodation.

RP Data’s senior research analyst Cameron Kusher said until now, the high number of people giving up rental properties to become owners had taken the pressure off rising rents.

Mr Kusher said the increased demand for rental properties would push rents to a record high, but the good news was that house prices would not be as strong as they had been over the past year as demand from first home buyers slowed.

But he said prices would still be pushed higher by our record population growth and low building levels.

Despite the shortage of rental properties, Melbourne is the lowest yielding capital city in Australia.

Metropolitan houses are returning 3.9 per cent while units are producing the slightly higher yield of 4.5 per cent.

The figures coincide with a warning from CommSec that Australia is more sensitive to an interest rate rise now than at any time in recent history.

He said the number of people who own their home outright had slumped from 40 per cent to 33 per cent in the past decade. He said 35 per cent of households had a mortgage, up from about 30 per cent a decade ago.

“Australia has become far more sensitive to rate hikes, a fact that must be taken into account by the Reserve Bank in deliberations on the cash rate,” CommSec’s chief economist Craig James said.

“The Reserve Bank must be careful with lifting rates. An increasing number of households are taking up mortgages and are therefore exposed to rate hikes. We expect the Reserve Bank to lift rates in baby steps over the next 12-18 months.”

According to the Real Estate Institute of Victoria house prices have risen 18 per cent from their March quarter low. The median house price has risen from $405,500 to $480,000.At the same time the rental vacancy rate has remained at historic lows of 1.3 per cent.

REIV spokesman Robert Larocca said pressure on affordability for purchasers and renters was likely as the improved confidence in the economy has revealed the underlying issue; a lack of housing supply to meet a growing population.

Despite being able to charge higher rents all home owners will be high with higher interest charges over the next 18 months.

A 2 percentage point incrase will add $88 a week to a $300,000 loan.