Are rents too low?

The Reserve Bank thinks so...

www.smh.com.au/news/national/rents-too-low-bank-warns/2007/02/12/1171128899933.html

While house prices have increased 175 per cent since the mid-1990s, rents have increased only 35 per cent on the Bureau of Statistics' measure,

They say rental yields are too low compared to other countries.

I agree!! But only because house prices are too high. They are clearly overvalued on a global scale.

Rents are normal to slightly below normal, houses are overvalued.

Australia is the emptiest country in the world, if you think paying megabucks for a tiny block of land is a great investment, think again!!

Yes they are.

This is reflected in the high demand for rentals and the terribly low vacancy rates.

Which leads to the question---"Where are all these rentals held by all these over geared over debted investors???"

I love these property threads...really polarises opinion like no other.

Rents are low here because of negative gearing. If you want to collapse property prices and/or re-balance yields, unwind negative gearing.

Realist said:

Australia is the emptiest country in the world, if you think paying megabucks for a tiny block of land is a great investment, think again!!

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If thats the case, why don't you buy a place in the middle of nowhere for 10 bucks!

Then work out how you are going to get your groceries, get to your place of employment, get water, electricity, sanitation, etc, etc...

I guess you'll want handouts from the taxpayer to pay for all that...

I certainly hope not otherwise I'm living at home longer... A crummy apartment at the docklands costs $350 a week... I can stay at a back packer hostel in the CBD for $280 a week... something isn't right

insider said:

I certainly hope not otherwise I'm living at home longer... A crummy apartment at the docklands costs $350 a week... I can stay at a back packer hostel in the CBD for $280 a week... something isn't right

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A "crummy" apartment in Docklands...my you have some standards. I thought Docklands was nice.

theasxgorilla said:

A "crummy" apartment in Docklands...my you have some standards. I thought Docklands was nice.

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It is nice... it's a small appartment that's what makes it crummy... The thing about apartment living is that the bar becomes your lounge room because yours is too small

Realist said:

They say rental yields are too low compared to other countries.

I agree!! But only because house prices are too high. They are clearly overvalued on a global scale.

Rents are normal to slightly below normal, houses are overvalued.

Click to expand...

I agree wholeheartedly Realist.

There was a study done of house prices in Western Countries compared to annual average earnings and Australia was considered the highest (as in most overpriced of all countries examined). It was a very interesting article - it was in The Australian about a month ago.

Duckman

insider said:

It is nice... it's a small appartment that's what makes it crummy... The thing about apartment living is that the bar becomes your lounge room because yours is too small

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James Squires bar? It could be worse...

Rafa said:

If thats the case, why don't you buy a place in the middle of nowhere for 10 bucks!

Then work out how you are going to get your groceries, get to your place of employment, get water, electricity, sanitation, etc, etc...

I guess you'll want handouts from the taxpayer to pay for all that...

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10 bucks !! sweet count me in, I'll spend the rest of my wealth on cows, sheep for milk and meat, I'll Just S%$#T on my garden for groceries, Solar panels and batteries for my electricity, Grow some smoko for biodiesel for my ute and in 50 years your kids can can buy my land back For millions now thats an investment, Do the hard yards now and the rest will follow
If you want a job on my $10 Farm your more than welcome. A town in queensland a few years back offered a limited number of $1 blocks to revitalise the town they were gobbled up, Then a mining boom hit in the area and these homes now dont sell for under 400,000 and there still trying to keep with demand for For tradesmen to cope with growing demand in this area.Hows this, about 6 months earlier the local real estate agent packed up and moved to tassie due to lack of sales, Better luck next time. i.e INVEST INVEST INVEST forget the quick buck.Good things come to those who wait

You're all welcome to come live on my eco farm minimum $1000 a week just gotta find this $10 land.

Exactly... Apparently we have plenty of land in Oz thats inhabitable...

Rents are way too low...removing negative gearing has been tried before and nearly crippled the tenants. The government realised that they would have to provide a lot more housing for people who could not afford the rent. That is why it was brought back in..expect the rents to be 30% higher in 3 years time.

cheers

Rents would need to more than double in the major capital cities to get back to a normal yield on housing. And if there's one tried and tested rule of investing, it's that yields revert to the mean eventually. So rents double or house prices crash (or some combination of the two).

With a boom in rents comes, of course, a very significant rise in CPI and likely interest rates too.

And so the inflation slowly works its way through the economy. First stocks. Then real estate. Then mineral commodities. Now soft commodities. Next consumer prices including rent. Then wages.

The Reserve Bank thinks so...

http://www.smh.com.au/news/national...1128899933.html

While house prices have increased 175 per cent since the mid-1990s, rents have increased only 35 per cent on the Bureau of Statistics' measure,

They say rental yields are too low compared to other countries.

I agree!! But only because house prices are too high. They are clearly overvalued on a global scale.

Rents are normal to slightly below normal, houses are overvalued.

Australia is the emptiest country in the world, if you think paying megabucks for a tiny block of land is a great investment, think again!!

Click to expand...

Lets see, I wonder which of the two is out of whack....mmmm

So a 35% increase in rents I calculate as a 3.04% compound growth in rents over 10 years - so pretty much in line with (actually a bit above!!) inflation ... which is what you'd expect given this is a large component of the CPI basket. It is also broadly inline with wages growth (although I think some suggest wages growth has been below CPI)..... all in all you'd say that rent increases have not been 'cheap' - unless you believe that dwelling rents should increase greater than wages growth.... in which case ever greater amounts of a persons income should go towards rent until it takes up 99.9% of the income pie??? hard to believe given that this hasn't been the case for the last couple of thousand years of population growth....


On to housing... 175% growth which equates to 10.65% compunding over 10 years. Yep that does seem pretty high.... but it didn't affect the inflation rate because house prices aren't included... if rents did match this growth rate (or even half of it) in the last 10 years, then what do you think the inlfation figures would have been and as a result what would have the RBA done with interest rates??? thats right they wouldn't have been increasing interest rates pretty savagly back in 2000-2003 instead of DROPPING them.. in which case house prices would have never got to the point they did in the first place.....

Any land lord who wishes to raise rents to bridge the gap now - will have to push rents above CPI target rate (2-3%)..... then the RBA has to lift rates ...... then the landord has to raise rents ... then the RBA has to raise rates... landlord raises rents.... and so on

Its what you get when inflation isn't recorded as inflation!!!!

How does this system correct - well real house prices don't go anywhere for a looong time, they haven't for the last 3 years. I reckon there's at least 3 more to go

GOYCO said:

Rents are way too low...removing negative gearing has been tried before and nearly crippled the tenants. The government realised that they would have to provide a lot more housing for people who could not afford the rent. That is why it was brought back in..expect the rents to be 30% higher in 3 years time.
cheers

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So in the last boom did negative gearing work?? .... did it supply more houses??.... NO and NO. 10% of investors money went into new housing - the rest pushed up prices on existing housing.... it doesn't work - because once people pay the huge prices and the game stops, they want some money back and so push up rents

The policy doesn't work because its a federal govt policy designed to increase supply. But who actually controls supply??? State governements - and they seem pretty incompetent about the whole thing.

If the houses don't get built - the policy doesn't work... end of story.

TJ

"So in the last boom did negative gearing work?? .... did it supply more houses??.... NO and NO. 10% of investors money went into new housing - the rest pushed up prices on existing housing.... it doesn't work - because once people pay the huge prices and the game stops, they want some money back and so push up rents

The policy doesn't work because its a federal govt policy designed to increase supply. But who actually controls supply??? State governements - and they seem pretty incompetent about the whole thing.

If the houses don't get built - the policy doesn't work... end of story."


I don't know which country you were in but the answer was a resounding yes and yes. Didn't you hear about the glut of apartments in Melbourne and Sydney in 2003???

If this is a feeble attempt at keeping your rent down then I'm sorry to be the bearer of bad news. Other than Perth and Darwin house prices are not coming down any further and rents are going to increase above the CPI. The rise of rents is only one factor in many determining inflation. The hole inyour argument is that the RBA use monetary poicy ( interest rates ) as a retarder of inflation NOT to fuel inflation. Therefore increases in rent to their long term average will NOT cause the RBA to increase rates.

Higher rents are here to stay, get used to it. The government will not stop the forces of supply and demand and they certainly do not want to go back to the dark old days" of trying to house a greater portion of the population.

All the above statements are in my own personal opinion and should be regarded as such

cheers

OMG..I cant believe you think rent is too low!!!!!

You must be paying a morgage or something. Because rents are almost at the same rate as a morgage repayment...AND THATS SERIOUSLY WRONG!

I live in Brisbane and work as a boilermaker...income of about less than $700 (after tax)/week. My rent for a 2 B'room unit about 5ks from the city is $275/week. YOU do the maths!

Mate, if rents increased much more...its the less well off that will pay the ultimate price.
You would have to weigh up moving further away from work and battling 1-1 and a half hrs of traffic each day....each way...or fork over more money to pay some1 elses mogage and get stuck in the rent trap for life.


Analysts have already stated that we are going to have a generation of people that will NEVER own a home.

Personally...Ive given up. Thats y i buy shares now

No wonder the birth rate has been in decline! It takes 2 good wages just to cover the morgage.

Unless Im missing someone's point on increasing rent...you high flying yuppies need your heads read and a dose of reality

One way or other the law of supply and demand will equalise the forces.

Ironically, those who have decided it makes better sense to rent and invest in shares will have more income to to pay the rent; and thus drive rents up anyway.

If house prices aren't factored into the CPI...then as Goyco says, thats inflation in denial. Eventually it will work its way through and rent will rise, wages will rise, inflation will rise, interest rates will rise.

Todays shortage of rental properties can only be fixed by better value for property investors; either rents must rise substantially or capital growth (house prices rise) or shares plummet.

At the moment the new super rules are encouraging investers to sell before July...so at the very least we should expect house price to remain depressed until July, shares to do well before July, and rent to rise before July.

Perhaps the next few months will be as good an opportunity to buy a house as any.

Go Nuke said:

No wonder the birth rate has been in decline! It takes 2 good wages just to cover the morgage.

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Yet another way millions lose from expensive housing.

"Good news, petrol prices went up 50%". Most wouldn't call that good news (and I say that as a very long term oil bull).

"Good news, food prices just doubled". Not good news in the opinion of most.

"Good news, the price of houses just went up". No different to the above two examples unless you're a speculator in either oil, dairy or housing.

We seem to have developed a mindset that rewards speculation an punishes genuine productive activity. Anything but good news in the long term.

Because rents are almost at the same rate as a morgage repayment.

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So why rent?
Why not purchase and keep ahead of capital growth?

Think about it a 5% growth in a 400K property means you have to put away $20000 a year just to keep ahead of Capital appreciation.
or $200/week at 2.5%.

Havent got a deposit---Either join with someone who can help.
Friend if not married or Partner and get one as soon as possible.
Its even worth looking at a low doc loan when you really look at the figures.--IE 5% deposit.
If you buy a house you can even rent out a room.

There was a story here about a guy who rents rooms to air hostie who are away more often than home at $150 a week---he wins they win.

FIND A WAY.

We all had to and it wasnt/isnt easy AT FIRST.