-+henk+-
XPdite Sponsor
[size=14pt]Reserve's Warning: Rents are too low![/size]
Jessica Irvine - Sydney Morning Herald - February 13, 2007
THE Reserve Bank has weighed into the rental crisis debate, warning of significant rental increases this year. Rents rose at 3.7 per cent last year, their fastest pace since 1991, according to the Bureau of Statistics. But the Reserve Bank expects worse to come.
"Information on new rental contracts suggests significantly larger rent increases, which are yet to pass through into the broader ABS measure for the total rental stock," the bank said in its latest statement on monetary policy yesterday.
Analysis undertaken by the Reserve Bank shows rent rises over the past decade have been "sharply at odds" when compared to increases in house prices. 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, or 60 per cent on the real estate industry's count.
The result has been a halving of investment returns on rental properties and a dwindling supply of rental accommodation, the bank said yesterday. "It would not be surprising if investors' willingness to supply additional rental property might be subdued in the face of the combination of low rental yields and limited prospect of capital appreciation given the current high level of prices." Meanwhile, demand for rental housing is rising. "With rents unusually low compared with the cost of buying a house, it might be expected that households' demand to live in rental properties would be strong," the bank said. But as it notes, the symptom of the current rental crisis - higher rents - also contains its cure - increased supply of properties.
"The low vacancy rates are contributing to growth in rents and should boost dwelling construction over the medium term," the bank said. A senior economist at Commonwealth Bank, Michael Workman, said landlords trying to jack up rents too far would be disappointed. "You could try, but places would be empty," Mr Workman said. "Undoubtedly what these higher rents will produce is higher yields and higher construction activity."
Although renters had little to smile about in the Reserve Bank's outlook for the economy, home owners can take heart. The bank has downgraded its forecasts of underlying inflation this year, from about 3 per cent to 2.75 per cent. Weaker-than-expected underlying inflation in the second half of last year and the impact of falling world oil prices on cost pressures and inflation expectations were responsible. However, with inflation expected to remain in the top half of the Reserve Bank's comfort zone of 2 to 3 per cent in both 2007 and 2008, rates are still more likely to rise than fall.
According to the bank: "With the economy still operating at a high overall level of capacity utilisation, it remains possible that the upward pressure on inflation that was evident for much of last year could re-emerge."
Economists expect the bank will keep interest rates on hold until at least May, when it will have had the chance to study another quarter of inflation data. "For us, the downgrade to the inflation profile means that rates are on hold for the foreseeable future," said an economist at ABN Amro, Kieran Davies.
Jessica Irvine - Sydney Morning Herald - February 13, 2007
THE Reserve Bank has weighed into the rental crisis debate, warning of significant rental increases this year. Rents rose at 3.7 per cent last year, their fastest pace since 1991, according to the Bureau of Statistics. But the Reserve Bank expects worse to come.
"Information on new rental contracts suggests significantly larger rent increases, which are yet to pass through into the broader ABS measure for the total rental stock," the bank said in its latest statement on monetary policy yesterday.
Analysis undertaken by the Reserve Bank shows rent rises over the past decade have been "sharply at odds" when compared to increases in house prices. 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, or 60 per cent on the real estate industry's count.
The result has been a halving of investment returns on rental properties and a dwindling supply of rental accommodation, the bank said yesterday. "It would not be surprising if investors' willingness to supply additional rental property might be subdued in the face of the combination of low rental yields and limited prospect of capital appreciation given the current high level of prices." Meanwhile, demand for rental housing is rising. "With rents unusually low compared with the cost of buying a house, it might be expected that households' demand to live in rental properties would be strong," the bank said. But as it notes, the symptom of the current rental crisis - higher rents - also contains its cure - increased supply of properties.
"The low vacancy rates are contributing to growth in rents and should boost dwelling construction over the medium term," the bank said. A senior economist at Commonwealth Bank, Michael Workman, said landlords trying to jack up rents too far would be disappointed. "You could try, but places would be empty," Mr Workman said. "Undoubtedly what these higher rents will produce is higher yields and higher construction activity."
Although renters had little to smile about in the Reserve Bank's outlook for the economy, home owners can take heart. The bank has downgraded its forecasts of underlying inflation this year, from about 3 per cent to 2.75 per cent. Weaker-than-expected underlying inflation in the second half of last year and the impact of falling world oil prices on cost pressures and inflation expectations were responsible. However, with inflation expected to remain in the top half of the Reserve Bank's comfort zone of 2 to 3 per cent in both 2007 and 2008, rates are still more likely to rise than fall.
According to the bank: "With the economy still operating at a high overall level of capacity utilisation, it remains possible that the upward pressure on inflation that was evident for much of last year could re-emerge."
Economists expect the bank will keep interest rates on hold until at least May, when it will have had the chance to study another quarter of inflation data. "For us, the downgrade to the inflation profile means that rates are on hold for the foreseeable future," said an economist at ABN Amro, Kieran Davies.