What has to happen for rents to rise?

I've been in the property game for the past eight years or so (with varying levels of success, if you go by my recent posts).
In this time two of my properties have more than doubled in price (Central Coast, NSW), one has gone up by over 25% (Logan, QLD), two have dropped 10% in price (Rockhampton, QLD) and the remaining five, which are the newest ones haven't done much but if anything have trended up rather than down (Elizabeth, SA)

I've seen some minor increase in market rents, but all in all, it seems to be keeping pace with inflation at best.
So what needs to happen for rents to actually increase?
I know that costs of lending have come down significantly in the past eight years, however if you look at a measure of investor affordability of mortgage_payment/rental_income, I'm sure this has gone up, rather than down, with recent increases in prices and investors being "forced" onto P&I loans recently.

Basically, for rents to change, two things have to happen, landlords have to be willing/needing to increase rents and tenants have to be able to afford higher rents.
Which one do you think is the issue that's not allowing rents to rise?

Do you foresee rents rising or is 3% (higher in regional, lower in Sydney and Melbourne) yield enough for investors?
Perhaps the other side of the coin is that yields could also increase by rents staying the same and prices coming down (as they've started to in Sydney and Melbourne).

Sorry for rambling on, but it's something that I find a little bit perplexing and for my retirement plans to work, rents have to either start rising (over the next decade) or I will have to adjust my strategy.

 

Increased people or increased incomes, preferably both.

 

I've always seen it as a pretty pure example of supply and demand. Landlords will always try to get as much rent as they can. Tenants will always want to pay as little as possible. Rents will ebb and flow in different areas according to the amount of supply.

 

I don't buy the idea that 'benevolent' landlords would not charge pretty much what the market will bear. Occasionally perhaps, but not in general.

So that leaves a market dictated by what the tenants can afford, or more accurately what they can 'bear'. An influx of people (migrants?) may push people to pay a bit more than they like, or may bring in tenants able to pay more, but in the end it is supply and demand, if you can't afford to live somewhere, you have to move, (or get evicted.)

The only thing that really determines rents, or pretty much all non discretionary costs is income.

It is also interesting that cities such as London have had a long history of inflows and outflows of people, and rising and falling property prices, gentrification / dilapidation / re-gentrification.
Once a place gets too busy / dirty / dangerous / expensive, people move out to greener pastures,
I get the impression this is happening in London now, and possibly also to a degree in Sydney, although the alternatives are not so manifold with Sydney. People get tired of living in an overburdened ******** where you can't park anywhere, the infrastructure is pressured, and life is generally a hassle..... unless of course you come from a country where things are worse.

 

All about supply and demand....
Decreased (relative) supply can be due to too low levels of development, less favourable tax environment for investors, etc

Increased demand due to increased population, changing demographics (more single person households), harder for people to move onto property ladder themselves (increased deposit needed and changing lending conditions). Etc.

Lots of reasons. See what is happening locally and weigh it all up.

 

A property crash should jolt rents up. Less property investors means less rental properties available.

I'd like to see rentals of $600pw per property out west. It could quite easily happen.

 

increased demand, wage growth, population growth....

 

To me, the major (but not the only) two factors driving/influencing rental increases are:

1) Good old supply and demand. If an area is a very high rental demand with limited available stock, well then asking rents may increase

2) Wage-growth/wage-inflation actually exceeding the paltry 1.9% (ish) overall inflation rate Australia at the macro level, is observing.

With the building boom of seemingly endless apartments causing oversupply in some areas, these areas are unlikely to see increased asking rents. Rarer/high demand stock and high demand school catchment zone houses will continue to outpace and increment rental increases.

But with overall wage growth generally flat or in decline (again, not in all areas or all career types!!), those areas where most renters arent increasing their wages, well, it is unlikely asking rents can go up much. If that extra $20pw is too much to bare, a would be renter might just consider the next suburb along instead of their target one, if it is cheaper.

 

It is simply supply and demand.

When lots of rental properties are available, competition between landlords to get tenants keeps rents level or decreasing. Try to increase your rent above market norms and your property sits empty for weeks or months. Or you can reduce the rent to get a tenant quickly.

When there are few rental properties available, landlords can increase asking rents as tenants compete for places.
Marg

 

Not necessarily. Just because investors don’t buy doesn’t mean the property disappears. Still same number of properties.

Tenants who can’t afford higher rents change their lifestyle. Move to a cheaper area or smaller property, share, move back home etc.

Or, in the event of a major property crash, can finally afford to buy a PPOR!
Marg

 

Tenancy demand needs to outweigh rental supply.

In Dublin the rental dynamic shifted because during the recession a lot of supply was completely abandoned or became rapidly unpopular, so demand for good quality family homes shot up. Tenancy demand also sharply increased because would-be buyers just could not get finance. As yields improved banks started lending again, but by that time prices had dropped (mostly in new developments/estates). When there's a lot of supply no one wants to rent a house far from the CBD in a half built suburb. This is why places like Belmayne saw massive drops of often 80% while a good house in say Sandymount would be clamoured over.

 

A property crash usually means a corresponding crash in share market / bonds, retail crashes and job losses. I do not see any of that corresponding to an increase in rent. Welfare payments are not increasing and income is flat as well. In a property crash tenants need good welfare payments and while Newstart may increase a little in the next few years I do not see that having an impact. All other payments are in affect reducing or harder to come by.
A property crash is more likely to signal greater spending on public housing in the long run. Though politicians seem to be dragging their feet on that.

 

This is exactly what has happened in the Pilbara

 

Australia is looking to have another slow decade. Other than migrant pressure, there's really nothing else to support higher rents.

Depending on ur holding timeframe, next 5 years is looking like a downtrend in property prices or stagnation at best. Rents likely to just track inflation or even retreat in the short term as investors rush to sell and cause an oversupply of houses + apartment oversupply hitting with many completions coming still.

 

Rental market in Perth is bad at the moment but good quality houses in non-dodgy areas are still very rentable. For someone buying today in Perth, finding houses with rental yields of 4% or even 5% is not that hard. Having said that rental yield is just one variable ...

 

The property will not disappear but there will be less construction and as the population increases, the demand for rental properties has to increase.

This demand will cause rents to rise. Don't forget also that as wages rise, albeit at a small rate, there will be more money in worker's pockets to pay rents.

APRA has shafted the average property investor's ability to buy IPs and as a consequence this rental increase monster will soon start to grow and grow.

 

Another cause for rent to rise is opportunities to make/earn money by living there. Therefore, for some cities, if the income of people is high, rent will follow as people are expected to pay a % of what they earned for accommodation. Rent will also rise if a place where housing is not affordable so more people will rent instead of buy (supply vs. demand). Third would be how do you put more people into a dwelling, eg., student household. Or, offering short term accommodation because few landlords would do that (eg., airbnb). Of course rent is always higher for dwellings close to CBD or major workplaces with employees of good affordability. Eg., universities/hospitals/etc.

 

Most (93% if I remember) investors buy existing dwellings, we dont have much impact on supply (and many foreign (chinese) investors in apartments leave their units empty/new.

Wages growth is the key, and there will be very little for a foreseeable future.

 

There goes my theory.

 

+1.

Why it could be years until Australian workers enjoy a decent pay rise, in one chart - Business Insider, 16 May

Australian workers continue to see wage growth mired near historic lows - The ABC, 16th May