Thursday, July 9, 2015

Highest rent increases in 5 years?

There are a few things to keep in mind when reading these articles. Let's have a closer look.

Domain use asking rents, not what places actually go for. As discussed in our rent tracker articles (more to come!) RBB data is a much better data source because it records what rent places are actually going for.
If we go back a year into the Brown Couch archives, we can put into context Domain's claim that this is the highest rent increase in 5 years.

For more than 2 years, Domain (APM) had houses pegged at 500 per week. That spike in September 2012? That is actually a higher percentage jump than the one reported today (a full 2% rather than the 1.9%). More importantly, they are both $10 a week- so the same dollar value. That jump was also described as the highest increases, as was the subsequent rise in March 2014.

The real story was seen in the authoritative Rental Bond Board data, which showed a more regular set of increases with some large jumps over 2014.

Now let's dig a little deeper into the reporting. While house rents were reported as increasing with the usual hyperbole not a peep was heard in the article about apartments. Guess why? Check out the quarterly change in apartments below. 0% rent increases. We'll wait for the release of the June Rental Bond Board data, as again there may be a different story in the real world, but it doesn't fit with Domain's narrative, so it doesn't rate a mention.

Dr Wilson, the senior economist at Domain Group, says some other things worth challenging in that article too: "We would have thought that given that we have record numbers of investors, supply might have caught up to demand, but the new supply just can't match the demand," he stated.

There are two things to notice- a record number of investors does not automatically translate into new supply, it could just as easily mean less owner occupiers. The low rate of first home owners buying in would suggest that may be a likely scenario. While we're at it, the low rate of first home buyers becoming first home owners is not to blame for rent increases- they're not the ones setting the rents!

More importantly though, most new supply, particularly investor-driven supply, is in apartments, not stand alone houses. Domain's data shows very flat growth in apartment rents. We're surprised they missed that.

The real deal
What this data, and the Rental Bond Board data doesn't show is what is happening to the people already in their homes. To an extent, the CPI rent index might capture some of that, but it is mixed in with new rentals as well.

From our Housing Affordability Survey of 2014, and many subsequent conversations with tenants, what is clear is that people are worried about making a fuss about various issues with their houses, because of possible termination or rent increase. Both outcomes lead to another data point for Domain and the RBB data as it is unlikely the rent will stay at the same level between tenants.

Also we'd like to point out that not everyone who rents is a frustrated home owner- many people who rent are just frustrated home makers. A recent article put it marvellously
"The point of the iconic quarter-acre aspiration in the Australian psyche is not the actual white picket fence or the big backyard; it’s stability and comfort. Our rental market is the opposite not because of the large number of apartments, but because a sense of ownership and security is virtually impossible for many."
As more people stay in rental market for longer, government should consider making that stay more comfortable. They can easily do so, and soon.

For more on the Tenants' Union platform of fair Rent Increases and more, check out our Just Renting policy page.

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