The surprising source of an epic crisis.
“Where exactly has this rental crisis come from?”
I’m getting this question a lot, and people get that it has something to do with Covid, but what exactly?
So let’s rewind a bit to 2020. When the pandemic first hit and the borders shut, the general consensus was that rental prices were probably about to fall.
With net immigration going from about 180,000 a year down to zero, that should have lowered demand in a meaningful way, and that should have led to lower rental prices.
And in a way it did. In suburbs keenly exposed to international students – like inner-Melbourne for example – the prices of units and other accommodation options popular with students did fall sharply.
But around the rest of the country, something weird started to happen.
The rental market actually tightened.
In a massive way.
The vacancy rate fell to a record lows. The number of available rental properties actually halved!
Well, what happened is that there was a race to space. We needed more rooms, because suddenly everyone needed a study, and people just wanted to get away from each other.
The average household size, in the 2021 Census fell from 2.6 to 2.5 people.
That doesn’t sound like a massive difference, but it had a huge impact on the housing market.
Across the country, that shift could have meant that we suddenly needed an extra 200,000 homes.
That is, it had the same impact on the housing market as if 200,000 homes were suddenly destroyed in a flood or a bush fire!
That’s why the vacancy rate tanked. That’s why rents exploded!
And it takes the housing market a long time to catch up from a shock like that.
In a good year – in a great year – we’re lucky to build 200,000 dwellings (detached and units).
So we had to dedicate an entire year of growth just to fixing this imbalance, never mind that the market is already in shortage and there’s people lining up for those new houses.
So it was always going to be a long road back for the rental market.
But just as we were starting that road back, Covid ended.
(Or at least we put it behind us.)
Covid ended and the borders reopened.
Immigration restarted and restarted with a vengeance. The government now reckons we’re going to import a record 300,000 migrants this financial year.
Pre-Covid we were running at something like 180,000 a year, and that was already quite accelerated compared to the previous decade.
So just as the rental market was starting to get back on its feet, the government dropped super-charged immigration on it.
And rents just kept on heading north.
And right now, they’re not slowing down. If anything, they’re accelerating.
And that’s where this rental ‘crisis’ came from.
Not that you’re allowed to call it a “crisis”.
Because that would mean that somebody might have to do something about it.