December 1, 2022 by Dymphna

RBA: rents will boom

Sometimes the RBA looks stupid. Sometimes it’s on the money.

There were a lot of Gem’s at the RBA Governor Phil Lowe’s testimony to the Economics Legislation Committee in Canberra this week.

Like when he was asked if he was sorry if people believed him when he said interest rates wouldn’t go up until 2024 at the earliest.

(He was sorry. ‘My bad’.)

And fair a-flipping nuff. You’re supposed to be the smartest guy in the room Phil. You literally have an entire building of economists working for you.

And it’s your hand that is literally on the interest rate lever.

When you say, “interest rates won’t go up until 2024 at the earliest”, it’s pretty reasonable for people to believe you.”

And when you then turn around and drop 300 basis points on the country in the space of six months, is it any wonder people were surprised? Is it any wonder that people were angry.

Because it had real financial consequences. Maybe people stretched themselves to take out loans, confident that rates wouldn’t rise until Mumma was back at work.

Or maybe people didn’t bother to fix at super low rates because they didn’t think rates were going anywhere.

So yeah, I get that the outlook was very different when you said it, but still, unless you’re absolutely 100% confident, maybe you shouldn’t go around saying stuff like that?

Just a thought.

But anyway, rants aside, the other interesting thing I noted was that Phil Lowe agrees with me, in the sense that he’s expecting rents to keep on growing quickly:

“The other supply side issue we are focused on is the supply of housing, because the rental vacancy rate now is quite low and the population growth is picking up”.

“I’m imagining that we’ll see increased pressure on rents over the next year as population growth collides with fairly modest growth in the supply of housing”.

I’ve been saying this for a while.

CoreLogic’s latest rental data shows that the number of homes listed for rent nationally has plunged to its lowest level in around a decade. Take a look at the chart. IN 2020 there were close to 140,000 homes for rent. Now there’s about 70,000:

That’s a big fall.

And this is a national story, with all the capitals down. Melbourne (-36.2%), Sydney (-31.4%) and Brisbane (-30.2%) have had especially sharp falls over the past year:

And a recent report from the Australian Housing and Urban Research Institute (AHURI) reckons that Australia’s rental vacancy rate is tracking at 20-year lows, and this has helped drive rents through the roof:

The AHURI blames Australia’s rental crisis on there being “not enough homes to keep up with population and household growth”:

At a basic level, Australia needs sufficient new housing to house the nearly one million new households formed between the 2016 and 2021 Census; an 11.9 per cent increase (or an average of 197,826 households per year)…

The number of new residential dwellings did not keep up with the number of new households, increasing by only 10.6% per cent (around 198,000 new dwelling each year)…

As the rate of household formation is greater than the increase in new dwellings, this leads to increased pressures on housing demand.

So rents are going to soar higher and higher.

And there’s nothing that AHURI or Phil Lowe, or anyone for that matter can do about it.

It’s locked in.