Property Management Update
Recent data about the availability of rental homes in Melbourne seems to indicate that the tight conditions of the past six years are beginning to ease.
The rental vacancy rate for Melbourne increased to 2.5% from 2.2% in June and is now well above the average for the past 12 months of 1.75%.
Even if these conditions do continue to improve, the broad vacancy numbers do not paint the full picture.
Looking past the vacancy rates, what emerged was a very clear trend of substantially reduced availability of affordable rental homes. The government deems that a rental home is affordable when no more than 30% of gross income is spent on rent. Lower income households are defined as those in receipt of Centrelink income.
In the March quarter this year a total of 17% of all rental homes in Victoria were deemed to be affordable. The actual numbers varied, of course, across the city. For instance, in Manningham only 2% were affordable, while in Dandenong it was 9%. There are very few areas in Melbourne where the rate of affordable rental homes is more than 10%.
A few years back, when housing was not in such short supply, the availability of affordable rental homes was much better.
Six years ago, 45% of rental homes were affordable. In Manningham it was 16% and in Dandenong it was 79%.
The only solution to this problem is the construction of more affordable homes.
Source: REIV
Property Market Update
The REIV’s September quarter market update shows that the median house price in regional Victoria dropped to $310,000 from $320,000 in the June quarter. The 3.1 per cent drop is very similar to the 2.8% fall recorded in the metropolitan area.
It is clear that concerns about the international economy and negative consumer sentiment have translated into reduced demand and a lower median. This serves as another reminder that the state of the housing market is directly linked to the health of the economy. Despite evidence that the local economy continues to outperform many of our trading partners, we are now experiencing a soft housing market.
Of the main regional centres, Geelong has recorded a very healthy increase of 5.7% to a median house price of $390,000. In Ballarat prices were stable, with a median of $285,000, and in Bendigo there was a 2.6% reduction to $277,500.
The lesson from the GFC, when the median fell by 14%, is that the market will remain subdued until confidence in the economy improves or there is a reaction to recently lowered interest rates.
The underlying message is that by the end of the year there is unlikely to be any substantial capital growth in Melbourne compared to 2010. The median house price increased by 1.4 per cent over twelve months from a revised $543,500 in the 2010 September quarter to $551,000 this quarter.
Looking only at this year may be concerning, however it has to be viewed in the context of what happened in 2010. Between 2009 and 2010 the median house price in Melbourne increased by 20 per cent. At the time the REIV said that was unsustainable.
That increase also caused understandable concern about reduced affordability and will make this softer year welcome for many buyers, significantly first homebuyers.
It is clear that the Melbourne market does move in cycles with some years being very strong and others less so.
Source: REIV