Rents to rise as home building slows

Article Category: Property & Housing

By AAP, 26 November 2010

Tenants in Sydney, Perth and Brisbane are likely to be slugged with annual rent increases of up to 7 per cent over the next two to three years.

Housing analysts have forecast rent rises across all Australian capital cities as new home construction fails to keep up with demand, home borrowing stabilises at weaker levels and the population continues to grow.

Economic forecaster BIS Shrapnel says renters will have to get used to annual increases of between 5 to 7 per cent in Perth, Brisbane and Sydney, and 3 to 5 per cent in Melbourne, Hobart and Adelaide over the next 24 to 36 months.

BIS Shrapnel analyst Angie Zigomanis said new dwelling construction had not been adequate over the past 12 months.

‘‘We expect rental growth to pick up again,’’ Mr Zigomanis said.

‘‘The last 12 months has shown marginal rental growth, but we expect that to get closer to the mid-single digits over the next few years.’’

As the economy picks up, any vacant rental stock should become ‘‘pretty rapidly filled,’’ Mr Zigomanis said.

 Housing shortages

ICAP economist Adam Carr said economic fundamentals were pointing to nationwide rental growth over the next two to three years.

‘‘We’ve got solid population growth, good incomes growth, good jobs growth and we’re just not building enough houses, so the logical conclusion from that is that rents are going to be pressured,’’ Mr Carr said.

Most Australian capital cities would experience higher rental prices over the next three years, he said.

The RBA raised the cash rate to 4.75 per cent at its November 2 board meeting after keeping rates on hold since May.

Nomura Australia chief economist Stephen Roberts said the central bank didn’t really want home building approvals to be too soft and noted that private sector other dwellings were down more than 15 per cent.

‘‘This means you’ve got an undersupply of housing running through the economy, which can put pressure on rents and home prices, even with interest rates going up,’’ Mr Roberts said.