Sydney rentals

There has been a bunch of articles in the SMH recently about how tight the sydney rental market is. This was a little disappointing given that we had just started trying to find a place the day the headline proclaiming a 20% increase appeared in the paper the day before we started seriously looking. As usual this was some “research” by one of the various property industry bodies which regularly come out with rosy predictions about sectors of the property market. Typical lazy journalism runs these articles without any scrutiny, indeed they’ve been predicting rebounds in housing prices the entire time its been going down.

The article had the desired effect, overnight some of the advertised properties increased their asking rent 10%, ringing to enquire about another on the following Saturday I was told that “the asking price has gone up because the owner read the article in the paper saying rents were going up 20%”, again they had jacked it up 10%, for a property that already looked a little pricey. Obviously if the prediction is wrong then the market won’t sustain these rises, but at least in the short term it will probably have the desired effect. I do wonder when this research stops being research and starts being market manipulation. Not all of the newspaper articles fall into this category, the discussion of the effect the changes to super rules are having is legitimate, but what I dislike is the hyped up price increase amounts.

My story has a happy ending. We found two places we like on the first weekend of searching, got offered both and took the one we liked best. Further out from the city now, we’ve gone from Glebe to Strathfield, which means I won’t be walking to work in the CBD anymore, but on the upside we now have about 3 times as much space and a yard for the little fella to crawl and soon run around in, but the upside is we are paying a bit less rent.

Update: Another article today but this time about house prices rather than rent. Two different surveys two different answers. Unsuprisingly the mortgage industry research, says

…a contrasting survey of 958 people by the Mortgage Industry Association of Australia (MIAA) and BankWest showed that Australians were becoming increasingly optimistic that house prices would increase in the next year.

The study showed that 42.9 per cent of respondents expected residential property prices to be higher in the next quarter, despite higher rates

(my emphasis)
where as a more independent poll found

A survey of 1,894 Australians by News.com.au found that 68 per cent of respondents said that higher interest rates would force home sellers to cut prices, while 42 per cent expected house prices to fall in the next quarter.

Advertisements

19 Responses to Sydney rentals

  1. JC says:

    Well I guess the market wasn’t manipulated, steve seeing you ended up with what you wanted.

  2. JC says:

    Steve

    With due repect ( i do like your math stuff) aren’t you contradicting yourself here?
    On the one had you’re saying journalists have been forecasting a turn around in house prices for the past which hasn’t materialized. On the other hand you’re saying they are manipulating the rental market. Which is it?

  3. Steve says:

    No I don’t think the journalists are doing it except by lazily, and uncritically reporting each piece of “research” that comes out of the property industry. I think the property industry is, or at least I think they are trying to.

    As for your point about it not materialising, I’m almost contradicting myself but not quite. The attempt to do it may or may not have an effect. Or it may have a short term effect. the main point is that they are an unreliable source. See my update to this post which will appear soon.

  4. Steve says:

    Essentially I have two problems, a small one with the housing industry research, which I think is biased, but it generally doesn’t worry me greatly but I was a little bit peeved by the timing.

    The other problem is a more general one of journalists uncritically reporting any interest group new release – this is a much broader issue than the property market it happens accross lots of fields both industry groups and non-profits pushing their barrow.

  5. JC says:

    But Steve you are on the one hand suggesting Journos are reporting unchallenged puff pieces from industry rental groups. On the other hand you are also saying they’re incorrectly reporting on house prices’ immediate upturn. You then wonder what is market manipulation.

    It seems to me that you don’t like what happened to rental rates after the piece. Fari enough.

    I would say that is not market manipulation no matter how rotten the journos are and most are close to useless on this subject.

    What could be happening is that landlods may not have understnood just how tight the rental market is and moved their price accordingly after the piece. This is no different to some broad economic indicator moving stock prices or some economic market guru making an announcement.

    This isn’t market manipulation at all. Rather it’s information being fed to the market. The obvious fact that markets cannot be manipulated is the point that house prices in Syd have been going down despite the protestions of industry groups planting their stuff in local papers.
    There is such a thing as market moving news.

    The Sydeny rental market is tight, there is no doubt about it.

    Reporting about it’s tightness isn’t manipulation.

  6. steve munn says:

    Good post as per usual Steve.

    My query is with this “…Australians were becoming increasingly optimistic (my emphasis) that house prices would increase in the next year.”

    As a home owner, I’m not sure why I keep getting told I should be optimistic about rising house prices. If house prices rise and I want to upgrade to something better, the price differential between my current and new home will be greater. I therefore lose out. Also, because a price rise reduces affordibility for first home buyers, many parents end up feeling obliged to cough up the deposit for their kids first home.

  7. Steve says:

    JC reporting about tightness isn’t a problem. The “rents to rise 20%” forecasts however are getting closer to the line.

  8. Steve says:

    SteveM,

    I think partly its because for most people the home is the majority of their savings and they are typically highly leveraged into their homes. A 10% rise in prices means they get a return on the part of their investment at a much higher rate. If they’ve borrowed 90% then they’ve got a 100% return on their capital. With twice the capital they are in a better position to upgrade.

  9. Sacha says:

    Steve, I know someone who worked for a while for the Real estate institute (or some similar body) – she said their “predictions” for property prices in different suburbs were a complete joke and barely based on anything whatsoever eg personal whim or desire.

  10. patrickg says:

    Hey Steve, I live in Strathfield, too! When I moved up, it was the perfect choice in terms of a price/distance trade off.

    Plus, if you like Korean food it has to heaven. If you haven’t tried Janani Indian at the Homebush shops, I also heartedly recommend you check it out.

  11. Steve says:

    Thanks I’ll keep that in mind.

  12. Jason Soon says:

    steve is right. technically the journalists, economically illiterate idiots that they are, are *unwittingly* acting like facilitators for a cartel to enforce price rises.

  13. ozrisk says:

    Steve Munn,
    The price increase is normally good for home owners – whichever way you cut it. Your interpretation above relies on pessimism and not running the numbers.
    Doing the numbers reveals the real situation. If I buy a house for $1m, for example, at an 80% loan to valuation ratio, I need to come up with a $200,000 deposit. In your case, you own the house, so this is a reasonable scenario.
    After 2 years price appreciation (and assuming interest payments have been met) the house is now worth $1,322,500 – and your equity is now $522,500. You now want to move and get another house of the same value somewhere else. You now have a deposit of over $500,000. You can easily cover the deposit on the new place and have the same sized mortgage.
    OTOH, if you can afford larger repayments, you can now re-leverage and get a bigger home – something you could not have done with static or dropping prices. With that deposit you could now go up to $2.6m – it has given you options you did not hve before.
    So, you are not worse off and you have more options. Is that is reason for pessimism?
    The only fly in the ointment is the transaction costs – stamp duty and real estate agent’s fees. You can now, howeve, defer these by loading them into the mortgage on the new property.

  14. steve munn says:

    Ozrisk,

    Maybe my calcs are wonky. Let’s say I own my house outright and it is worth $400K today. A better house in the next suburb is today worth $500K. Let’s say in 12 months time both houses rise in value by 10% so they are now worth $440K and $550K respectively. The differential has gone from $100K to $110K. I therefore need to come up an extra $10K to upgrade.

    Moreover, if I have children, I’m going to have to come up with more money to help them buy a first home due to declining affordability.

    Isn’t this situation of madly escalating house prices kind of like the story of everyone trying to get a good view in a sports stadium? We all end up standing on stilts but we are no better off overall than we were when comfortably seated.

  15. ozrisk says:

    Steve,
    To me, there are two problems when buying a house using a mortgage – the deposit and servicing the loan. The deposit is normally the bigger hurdle – in Australia it is normally 20% of the purchase price.
    If you own a house, the price appreciation, because of the leveraged nature of the ownership, is all to your benefit, so a 10% value increase (and using your numbers) gives you a 50% increase in your equity and so money available for the next deposit.
    The additional $10K in price can be deferred over 30 years’ worth of payments.
    So – you have an additional $40K in hand to cover an upgrade of $110K – the value appreciation has now been almost a third paid off.
    If you could have afforded the $500K house you probably would have bought it at the time – but you did not as you could not afford to pay the deposit or the repayments. Now at least the deposit is paid for.
    On the kids point – once you are an empty nester you normally have the house almost paid off. You can now sell the place and move into a smaller one (it stops them moving back in), freeing up the capital to help the kids (BTW – I wish my parents had done this).
    As they are now entering into another leveraged play they only need 20% of the value of the house as a deposit to get the same quality house as the family used to have. With 2 kids and no additional investment this means you can buy for cash a smaller home, worth 60% of the value of your original place and free up the other 40% for the kids.
    As they are all either the same price as the original one (or cheaper) the price escalation is not a problem, but a solution. If the kids want a better house than the original family home they can get it themselves. Greedy buggers.
    The problem, as you identify, is the desire to have something better – but the way the leverage works can make these more affordable (at least in terms of the deposit), not less. If you have problems servicing an additional %10K on the mortgage, though, you should not be looking to make that commitment.

  16. Pinguthepenguin says:

    …which all falls to shit for those of use not fortunate enough to have parents in a position to sell their place and gift you money to help you out. Do we want to create our very own landed gentry of property developer families, while the rest of us make do with renting?

  17. Sacha says:

    Pengu, you don’t need to buy a house where you live ! You can invest anywhere.

  18. […] on the rental crisis hype One of my pet hates is the “research” turned out by real estate industry groups which is always, shall we […]

  19. Sam says:

    It would be interesting to learn how the short term rental market is performing.

%d bloggers like this: