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Australia continues to endure a rental crisis, where extremely low vacancies, low stock and record-high rents have created a pressure-cooker environment for renters.
But despite the challenges, space is still top of the list for many, with demand remaining robust for larger rental properties.
New research reveals that houses with 4 bedrooms, 2 bathrooms and 2 parking spots have been the most viewed among rental listings across all Australian states except Tasmania (where 3 bedrooms, 1 bathroom and 2 parking spaces are most popular.
For units, the most popular configuration nationally was 2 bedrooms, 1 bathroom and 1 parking spot.
That setup also topped the list in all states except ACT, where smaller 1-bed, 1-bath and 1-park units came out on top.
But despite the demand for space that larger homes provide, strained affordability in the rental market has pushed renters towards cheaper properties, which typically means compromising on space.
PropTrack’s senior economist Paul Ryan said that there has been a shift in the search data for smaller homes.
Renters forced to compromise
Record low rental vacancy rates leave limited choice for renters and have pushed prices higher and higher.
While the number of vacant properties increased a little in April, the market is still very challenging for renters.
“High levels of rents are one of the key things that decide what living circumstances someone is going to be in, rather than what their ultimate preferences would be,” Ryan said.
If there were more cheaper rental accommodation options, people would spread out and want their own space.
Challenging rental market conditions have meant 72% of renters feel they need to compromise on price, location or features to find a rental property, according to a recent realestate.com.au survey.
More than half of renters (52%) said they were experiencing financial difficulty due to high rent payments, while 39% of renters said they would have to move into a smaller rental property or share house due to financial difficulties.
Suburbs where small rental properties are in the highest demand
Houses with two bedrooms were the most viewed configuration in several popular inner city suburbs, such as Richmond, Carlton North, Prahran and Brunswick in Melbourne.
In Sydney, two-bedroom properties were also the most viewed type of rental houses in the inner city suburbs of Newtown, Paddington and Surry Hills.
Residents in these suburbs tended to be younger and lived in smaller household sizes, with the majority of households made up of couples with no children, according to census data from the ABS.
Meanwhile, one-bedroom rental apartments had the most views in the CBDs of Melbourne, Sydney, Brisbane and Perth, as well as Surfers Paradise on the Gold Coast.
Small apartments are prevalent in the CBDs, and units with just 1 bedroom were about $400 per week cheaper than 2-bedroom apartments in Sydney, $200 cheaper in Brisbane, $180 cheaper in Melbourne and $130 cheaper in Perth.
Suburbs where large properties are in the highest demand
Five-bedroom houses were the most-viewed in many affluent suburbs in Sydney’s north, such as Lindfield, Gordon and East Killara, and in the east in Bellevue Hill and Rose Bay.
Median weekly rents in these suburbs are well above that of a typical home, sitting as high as $1,300 per week in Gordon to around $2,600 per week in Bellevue Hill.
And for units,3-bed, 2-bath, and 2-park properties were the most popular unit configurations in the Gold Coast suburbs of Hope Island and Robina.
The rental crisis will continue to worsen
With the limited new projects and robust population growth, the housing shortage will only continue.
After all, rising levels of rental stress are a problem that can only be improved with an increase in the number of rental properties.
The federal government has recognised the need for more housing, setting a target of 1.2 million new homes by 2029, but current trends suggest it’s unlikely we’ll meet this target in that proposed timeframe.
As we move through 2024, the limited supply of new dwellings, strong population growth, and shifts in preferences due to the pandemic will continue to put pressure on rental markets.
While this is bad news for tenants, it means that rental property providers will start to get compensated for their increased overheads and expenses.
What it does provide is a window of opportunity for investors
While the list of properties most in-demand isn’t where I’d necessarily suggest buying a rental property, the current market does represent an opportunity for investors with a long-term focus.
This window of opportunity is not because properties are cheap, but when you look back in 3 years’ time, the price you would pay for the property today will definitely look ‘cheap’.
The opportunity arises because consumer confidence is low at present, with many prospective homebuyers and investors sitting on the sidelines.
Sooner rather than later many prospective buyers will realise that the RBA’s efforts have brought inflation under control.
And at that time pent-up demand will be released as greed (FOMO) overtakes fear (FOBE – Fear of buying early), as it always does as the property cycle moves on.
Now, I’m not suggesting taking advantage of tenants; what I’m suggesting is to recognise there is currently a problem (lack of rental accommodation) and provide a solution.
And remember, while the current property market might not be attractive for investors right now due to high costs, government interventions, and a low supply of property for sale, it’s important to remember that property investment is a long-term game.
Don’t try to time the market – this is just too difficult.
And don’t hunt down a bargain.
All investors should focus all their efforts on buying an investment-grade property in an A-grade location because these types of properties are in short supply but are still selling for reasonably good prices.
Plus they’ll hold their value far better in the long term.
While it might feel counterintuitive to buy in a challenging market, you can benefit from less competition, low consumer sentiment, more time, and minimal risk of oversupply.
Remember, the rental crisis is only worsening further, with no end in sight.
Now would be a great time to buy an investment property and enjoy high demand while trying to be a part of the rental crisis solution.
Maybe others might follow in your footsteps.
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