For Whom the Bell Tolls

Matthew Bell, an economist at Australian Property Monitors, reckons we've just had 'the year of the renter', and now we should get ready for 'the decade of the landlord.'

Says Bell:

Renters were the winners last year when median asking rents for both houses and units in Sydney rose by just $10 per week, up to $460 a week for houses and $420 a week for units. Such growth of just over 2 per cent was well below the longer-term trend of 6-7per cent annual growth, and down heavily on the 12-13 per cent growth rates experienced in 2007 and 2008.... It is hard to see this continuing.

It won't continue, according to Bell, because of improved employment prospects, rising interest rates, population growth, undersupply of housing, low vacancy rates - the usual suspects.

Here's a few things worth keeping in mind when reading Bell's forecast:

First of all, always remember that APM is a business and they're flogging a product: specifically, data about property prices, packaged up in reports for the discerning investor/speculator. To move this product, they've got to get people thinking now is the time to buy a property. Depending on the circumstances, they make the pitch in one of several different ways. Usually the line is: rents just keep going up and up, you better get into the market (and buy an APM property report before you do). This year it seems to be: it was a lean year for landlords last year, but rents are set to go up and up, so get in on the ground floor (and buy an APM property report before you do).

So, whatever their talents, APM have an interest in predicting great things for landlords. No surprises there - and it's not unique to APM. All the other forecasters have an interest too.

Now, more specifically about APM: when Bell talks about rents, he talks about 'asking rents', which are what APM reports on by monitoring agents' 'to let' ads. As discussed previously, 'asking rents' are different from the rents tenants actually sign up to (last time we called these 'new agreement rents', and these are what Housing NSW reports on in the Rent and Sales Report, using data from the Rental Bonds Board), and these are different again from the rents that all tenants - new and longstanding - pay ('established rents', which can be derived from the Census and the Consumer Price Index).

In that previous discussion, we saw how median 'asking rents' were a lot higher than median 'new agreement rents': on average over several quarters, they were higher by $45-50 per week. This meant, we suggested, that exuberantly greedy landlords and agents had lost the plot and were overshooting what the market could bear.

I wonder if what happened over the past year is that landlords and agents felt less exuberant and overshot less - that is, they narrowed the gap between asking rents and new agreement rents. We get an indication of this looking at the Rent and Sales Report and the CPI. Keeping in mind that the available figures are not directly comparable, these sets of data show rents increasing through 2009 – new agreement rents up 3.9 per cent (Sept 08-Sept 09) established rents up 5.7 per cent (Dec 08-Dec 09) – not as much as in previous years, but still more than APM's 'asking rents' measure indicates. Nor is it exactly consistent with APM's line that tenants have had a year off from rent increases and are ready to pay them again.

Another thing to keep in mind about APM: there's an issue with their figures changing from report to report. We noted this last year: then, in so many of their reports the figure they gave for the 'asking rent' for the same time one year previously was lower than the figure they actually reported at that time; this made the increase in asking rents over the period appear larger. This time round, the figure APM gives for the median asking rent for Sydney units one year ago (that is, December 2008) is $10 more than the figure they actually gave in December 2008. This change makes the increase in asking rents smaller than it would otherwise have been – which is in keeping with APM's line this time about tenants having a year off from rent increases.

(There might be an innocent explanation for APM's changing figures – if there is we'd be pleased to hear it. Without an explanation, people might draw their own conclusions from the fact that direction of each of the changes – whether down or up, and consequently whether the increase in asking rents is larger or small – always assists the line APM is taking at the time.)