Shortage Of Premises Means Big Rent Rises

PETER MARTIN AND JONATHAN CHANCELLOR

November 30, 2009

SYDNEY rents are set to climb more than 21 per cent over the next three years, the forecasting group BIS Shrapnel says.

It suggests that after rising 6.2 per cent this year, Sydney rents will increase by 7.1 per cent a year for the next three years.

The tightening rental market will cause the vacancy rate to drop below 1 per cent, then remain very low in 2011, BIS Shrapnel predicted.

The envisaged rent rises were an outcome of medium- and high-density dwelling construction starts plunging 28 per cent in 2009, reaching their lowest level since 1987.

”Housing supply is set to fall due to the low pipeline of new apartments,” Jason Anderson, an economist at BIS Shrapnel, said. “While supply has plunged, demand remains very strong.”

The net addition to the population from migration in 2008/09 is estimated at about 300,000, a record high, Mr Anderson said.

Tighter lending restrictions on development projects following the global financial crisis had also contributed to the decline in supply.

”It is uncertain as to how long it will be before lending restrictions are eased and, even if some improvement were to occur in the near future, it would be some time before supply improves as most projects take 12 to 18 months to complete,” he said.

The rush to buy a first home was another factor adding to the pressure on rental markets.

“A first-home buyer moving out of the family home, and purchasing a former investment property, will have actually reduced the available rental stock,” Mr Anderson said.

The long-term rental growth in Sydney between 2002 and 2008 was 3.5 per cent.

The latest official data from the NSW Department of Housing indicated rents rose 3.9 per cent in the year to September. This reflected a $395 weekly median for two-bedroom rentals across Sydney.

Rental growth was highest in the outer suburbs, with a 6.9 per cent annual increase to $310 a week. It was up 4.2 per cent to $375 a week in middle-ring municipalities and up 2.2 per cent to $500 in the pricier inner ring suburbs.

The estate agent John McGrath said he expected rents would increase next year by between 5 and 10 per cent due to continuing short supply.

He said yields would be maintained around current levels.

Yields had dropped slightly from an average 5.3 per cent for apartments to 5.1 per cent, he said, and house rental yields had dropped from 4.4 per cent to 4.3 per cent.