The rental market in Australia is extremely competitive and it doesn’t look like things will change for the short term.
Australia’s rental vacancy rates are at crisis point, with national vacancy sitting at its lowest level since before the pandemic. Victoria is one of the worst affected states, with vacancy at 1.28%.
The current low in available rental properties is due to a ‘perfect storm’ of:
investor activity being limited due to high interest rates
migrants returning to Australia from overseas
unexpected expenses forcing building companies out of business
banks being more cautious about lending to developers
buyers being more cautious about purchasing off the plan
lack of building supplies caused by supply chain issues
labour and subcontractor shortages
people gravitating towards living in smaller numbers
funding going towards infrastructure projects rather than housing.
To add to this, the Albanese Government recently announced it will be making changes to help streamline the arrival of skilled migrants. This means more new residents, which is good for the labour shortage, but also more pressure on the rental market.
Meanwhile, companies going bust means even approved homes aren’t being finished, which is leaving more people without a place to live.
As reported by the ABC, housing supply needs to catch up with demand. This takes time, which is why vacancy rates aren’t expected to change any time soon. The only thing which may ease the pressure (other than a sharp drop in interest rates) is people starting to live together in larger numbers as a way of offsetting the rising cost of rent.
Consequences of the rental crunch
Rental price increases are of course the side-effect of lower vacancies around the country. As the cost of living increases, average rental costs have gone up by more than 10% over the last twelve months.
This is due to increased competition as well as investors being forced to raise rent to offset rising interest rates.
For real estate agents, the challenge is maintaining the right balance of quality clients while minimising churn. It is more difficult to onboard new property owners because there are fewer of them out there, so providing excellent service and great value for money is essential.
The agencies which survive these current conditions are able to run lean so every dollar of revenue is maximised.
The easy way to build your rent roll
While real estate is always either a buyers’ or a seller’s market, the exchange of a rent roll is more of a win/win.
If you’re looking to sell a rent roll, 2023 is a good time because new rental properties are scarce and it makes more sense to purchase a rent roll rather than trying to build one organically.
If you’re thinking of buying a rent roll, this strategy will fast-track you to better results, particularly if you purchase a list in great shape with a strong history and a good team behind it.
Adding to a rent roll is painstaking and costly when there are fewer rental property owners looking for support and when there is also a shortage of experienced business development staff who specialise in bringing new investors on board.
The clever short cut is to do your research and purchase a rent roll to enhance the ‘bread and butter’ side of your agency.
Before you buy, make sure you, your accountant and your legal team do your due diligence in relation to:
up to date agreements with property owners
the footprint of the rent roll
past and current financial performance
statements and documents from the vendor
future revenue forecasting.
You’ll also need to think about whether or not you bring staff across as part of the purchase and how your agency will ensure property owner retention for the long term.
In 2023, purchasing a rent roll makes sense for agencies with their sights on growth. This strategy will help overcome the rental property shortage issue and give your business a more predictable future.