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Residential Vacancies Surges

Posted on 13 May 2020

Source:  Australian Property Journal

RESIDENTIAL vacancy rates surged across the country in April, with CBDs and holiday destinations feeling the full force of the COVID-19 outbreak as the Sydney and Brisbane city markets hit record highs. SQM Research shows the national rate jumped from 2.0% in March to 2.6%, with the total number of vacancies Australia-wide now at 88,668 vacant residential properties. All states recorded increases in rates with the exception of Darwin, which recorded a 0.1% decline. April's rate is also higher than the 2.3% seen at this time last year, indicating a surge beyond seasonal factors. Only Perth and Darwin have recorded lower vacancy rates compared to this time last year.

Among the largest rises are the capital city CBDs. Sydney blew out to 13.8% from 5.7%, while Melbourne hit 7.6%, up from 5.0%, as the Southbank sub-market hit 13.0%. Brisbane nearly doubled its rate, from 5.7% to 11.3%. Other holiday locations also suffered. Surfers Paradise posted 8.5% and Noosa blowing out to 6.8% as the country was locked down. Louis Christopher, managing director of SQM Research said the blow out in rental vacancy rates for the major CBDs suggests a mass exodus of tenants occurred over the course of March and April. "This might be attributed to the significant loss in employment in our CBDs plus the drop off in international students. We are well aware of a surge in short term accommodation now being advertised for long term leasing." Christopher said that if high vacancies are sustained throughout the course of the year, then far deeper falls in rents can be expected which would be good news for tenants but a "disaster" for landlords. "There will also be economic consequences with further sharp falls in building approvals likely; thereby risking a major depression in our residential construction sector as well as the rather obvious risks for housing prices."

Sydney, Melbourne and Perth recorded decreases in asking rents for both houses and units over the month. Brisbane, Canberra and Hobart recorded decreases in house asking rents but minor increases in unit asking rents. Darwin was the only city that has remained relatively stable, with increases recorded in house rents of 2.7% but declines in unit rents of 2.0%. Adelaide bucked the trend and recorded rent increases for both houses and units of 0.1% and 1.4% respectively.

In its latest housing forecast ANZ suggested investor demand is likely to be hardest hit in the current environment and tipped vacancy rates to rise sharply over coming months. The major lender expects the rental market to harder hit than the new home market as pressure on the rental market from reduced demand and increased supply will lower the incentive to invest in property. The number of rental properties coming onto the market has been furthered by short term rentals such as Airbnb offerings switching to longer term leases, potential vendors withdrawing properties for sale and listing them for rent; the overseas student market drying up; and the sharp reduction in incomes potentially driving younger renters back to live with their parents. CoreLogic data shows rental listings have risen sharply, particularly in inner Melbourne, by 36% towards the end of the April, and Sydney by 34%. Around 2.4 million temporary residents are currently in Australia and many are not entitled to unemployment benefits. ANZ economists said it is reasonable to expect that some could decide to leave Australia, and they won't be replaced by any new arrivals until the borders reopen, while natural increase is unlikely to take up the slack as fertility rates decline, population growth of the key demographic slows, and more strained financial considerations are likely to push out decisions to start or extend a family. ANZ said renters are particularly vulnerable amid income reductions. "Renters account for a disproportionate share of workers in the hardest hit industries of arts/recreation, accommodation and food services and retail. They are also more likely to be casual workers. Renters are also much more likely to have a smaller buffer of living expenses."

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