Finance Property Rising Sydney vacancy rate puts pressure on landlords to drop rents

Rising Sydney vacancy rate puts pressure on landlords to drop rents

Graph with houses and coins.
Rising vacancy rates are putting downward pressure on rents. Photo: Getty
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Fresh data shows Sydney rents are set to fall due to increased supply – supporting earlier claims that national rent-to-income ratios have been steadily declining since 2012.

According to the Real Estate Institute of New South Wales (REINSW), Sydney’s vacancy rate sprang back to 3.6 per cent in October, after falling below 3 per cent for the first time this year.

That’s good news for renters, as most analysts believe rents start to fall when vacancy rates rise above 3 per cent.

“It means greater choice for tenants, which will undoubtedly put some downward pressure on rents,” REINSW CEO Tim McKibbin told The New Daily.

“But having said that, [stock] needs to keep coming onto the market, because whilst there are those who argue there is an oversupply, when you look at [population growth] … it’s clear we’re going to see constant pressure on accommodation.”

Sydney’s “middle” suburbs – Bankstown, Hurstville, Manly, to name but a few – had the highest vacancy rates. No less than 4.2 per cent of properties were vacant in October.

Meanwhile, the city’s “outer” region – covering everything from Blacktown to the Blue Mountains to Gosford – recorded a vacancy rate of 3.9 per cent, while its “inner” region reported a rate of 2.7 per cent.

REINSW’s data comes just weeks after Reserve Bank deputy governor Guy Debelle told an investment conference that Sydney’s rental vacancy rate rose to its highest level in 16 years in June.

As a result, Dr Debelle said, “rents are declining, and the rental inflation component in the CPI, which captures existing rents, is close to zero for Sydney”.

A joint ANZ-CoreLogic report came to a similar conclusion in June.

The bank and property analytics firm found Australia’s median rent to income ratio had been steadily declining since 2012, thanks to increased supply.

And national median rents at the time of the report’s release were cheaper than national mortgage repayments on median-priced dwellings.

Tenants Union of NSW senior policy officer Leo Patterson Ross agreed rents had fallen in recent years.

And he said higher vacancy rates would probably lead to further falls.

“But what I think people are missing is that we had 15-20 years of constrained supply and not enough housing, so we’re still recovering from decades of undersupply, which has skewed the market in quite substantive ways,” he told The New Daily.

“The vacancy rate would have to stay above the natural vacancy rate (3 per cent) for quite some time to rectify that.”

Today’s median rent in Sydney is $156 higher than it would have been had rents increased in line with inflation, and $107 higher than it would have been had rents increased in line with wages growth.

Society should seek to reduce that gap, Mr Patterson Ross said.

And governments should also move to strengthen tenancy laws, given Australians are renting for longer.

“I really don’t think we’re in a tenants’ market. Some analysts who throw that idea around haven’t really thought about what a tenants’ market would look like, because they’ve never seen one,” Mr Patterson Ross said.

“Are tenants being offered longer leases? Are they allowed pets by default? Do the repairs get done? I don’t think we’re seeing anything that suggests landlords are feeling a pressure to compete for tenants.

“So they’re dropping rents rather than saying you can stay here for five years, or that you can have a pet.”

How can you reduce your rent?

  • Both prospective tenants and existing tenants on periodic leases can ask for a better deal.
  • Prospective tenants should negotiate on the rent if there aren’t many people at the rental inspection, as this suggests there’s little demand for the property.
  • Existing tenants should ask for a rent decrease when the vacancy rate in their area is rising. Tenants can check that information here.
  • Whatever your position, the best way to negotiate a rental decrease is to find a handful of similar properties that have an advertised rent that’s cheaper than yours. Once you can find three or four similar listings with cheaper rents, put this information in an email to your property manager and politely request a better deal.
  • If you’re a prospective tenant, come armed to the rental inspection with this information, and tell the agent you’re interested in the property but believe the rent needs to come down. Bringing along a record of your rental history won’t hurt your chances, either.

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