In normal times, this should put a pause on rental growth. But these aren’t normal times.
One of the interesting things about this boom is that it’s really being driven by two engines of growth.
The first is record low interest rates and the massive money printing program the RBA is currently in the middle of. $5bn a week, with no end in sight.
I’ve written a lot about that before.
But the second driver is a little more interesting – or at least unique. It’s a rental boom.
Rental prices are growing at a scorching clip right now. On Corelogic data they grew at 7.7% over the year to July.
But it’s actually stronger than that. Because the national average is being held down by some ordinary results in the high-rise unit sectors of Sydney and Melbourne.
When you look at unit rental growth, you can see Melbourne is down 4.9%, and Sydney is barely positive at 0.9%.
That’s all about the glut in high-rise, which typically has been driven by student and immigration demand – both of which have dried up with Covid.
But if you strip out units and just look at detached housing, you can see growth is very strong across the country. Sydney at 7.2%, Adelaide at 8.2%, Brisbane at 9.2%. And check out Perth! 16.6%.
That’s scorching. And that boom in rental prices is helping fuel the boom in house prices.
Remember the return of an asset and the price of an asset is inexorably linked. And the rental price is the return you get for your property asset.
So the rental boom is driving the property boom.
But the question now is, what happens if households start to freeze up with the recent round of lockdowns.
Typically, rental growth is driven by household incomes, which is tied to jobs, and by confidence.
But we know household and consumer confidence has taken a knock since the recent rounds of lockdowns started.
It’s the most dramatic decline since the Covid crash, to one of the lowest levels on record.
Now typically, that would probably see rental growth start to slow.
But these aren’t ordinary times.
I mean, I would have expected to see rental growth fall through 2020. People were very nervous.
We also had a complete collapse in immigration and student numbers, which both help drive rental demand.
But what we saw through 2020 was that the rental market became very competitive.
I think what happened was that sharehouses broke up, children left their parent’s houses – people just tried to get away from each other.
And that caused rental demand to surge – which is what drove the boom in rental prices.
And so with lockdowns pinning down most the country again, what do we thinks going to happen?
Will households bunker and rents slow?
Or will people disperse further, driving even more rental gains.
I’m not totally sure. History is no guide to us these days. These are unusual times.
But it totally wouldn’t surprise me if this boom driver splutters for a bit…
… and then bursts back into life.