Vacancy rates are tight across most of Australia: Hotspotting's Terry Ryder

EXPERT OBSERVER

Vacancy rates are the most under-rated and under-reported of all the parameters that chart real estate markets.

Mainstream media is obsessed with short-term movements in median prices, which comprise a very blunt instrument for measuring property trends.

Among their many faults is that they are rubbery figures prone to all kinds of vagaries (observe the different figures from different sources about the same markets) and that their significance is often misinterpreted by writers who don’t understand real estate (most of them).

But their biggest weakness is that they describe the past when real estate consumers mostly want to know about the future of prices.

There are some tools that can provide a clue to the future movement of prices – one of them is sales volumes and another is vacancy rates.

Here’s a simplistic view of why they matter. If vacancies are low, rents will rise. And when rents rise, prices follow. It works in reverse as well: locations with high vacancies seldom deliver price growth.

So this makes trends with vacancy rates really important. And the recent trends suggest rising rents and ultimately prices in many locations around Australia.

This is an important thing to know. So why aren’t you reading about it in mainstream media? Because there are few journalists out there in the wacky world of media who know anything about real estate. They’re people who recycle press releases, invariably with an emphasis on the negative.

The reality is that vacancy rates are a remarkably positive story in Australia right now.

The latest figures indicate that there is ongoing improvement in vacancy rates in major markets around the nation – with a few exceptions.

SQM Research’s monthly report on vacancy rates for the eight state and territory capital cities shows that, for the third month in a row, there’s been a notable improvement in vacancies.

In April the national average vacancy rate was 2.6%. In May, it improved to 2.5%. In June it fell further top 2.2%. And now, the new figure for July, is a further improvement to 2.1%.

In June, the most significant thing was that vacancies fell in all eight capital cities. And, amid the new figures out for July, vacancies fell again in seven of the eight capital cities.

In five of the eight capital cities, vacancies are now below 1.5%. That means that Hobart, Canberra, Perth, Adelaide and Darwin all have very tight rental markets.

In addition, Brisbane’s vacancy rate is 2.2%, which is also low – while Melbourne has risen slightly to be a little above 3%.

Sydney has improved but remains higher than normal at 3.6%.

I know from Hotspotting’s day-to-day research that most regional centres also have been tight rental markets. Here are some NSW examples: Dubbo 0.7% and falling, Orange 0.4% and falling, Tamworth 2% and falling.

Vacancies are below 1% in most Bendigo postcodes and trending lower; all the postcodes in Ballarat are below 2% and falling; and all the towns of the Latrobe Valley are under 1% and going down.

The latest figures from both SQM and the REIQ confirm that central Queensland towns and cities have very low vacancies and rising rentals.

I could go on, but you get the picture.

The overall outcome is that there is – overall – a shortage of rental properties across Australia, despite all the impacts of the pandemic.

As a result of the generally low vacancies, rents rose 2.2% nationally in July for houses and were unchanged for apartments, according to the SQM Research figures.

House rents rose during July in Perth, Adelaide, Canberra, Hobart and Darwin.

And for apartments, rents rose during July in Brisbane, Perth, Adelaide, Canberra, Hobart and Darwin – everywhere in fact, except Sydney and Melbourne, which are the only cities with vacancies above the 3% benchmark.

It’s significant that the cities and regional areas with low vacancies are places where the pandemic, for now at least, is under control. Restrictions are relaxed, people are getting on with business and real estate markets are busy.

There is upward pressure on prices in many of these places, helped by improved confidence in all those parts of Australia that exist outside of Sydney and Melbourne.

Keep in mind that most Australians – two-thirds of them in fact – don’t live in our two biggest cities. They inhabit towns and cities where vacancies are low, rents are rising and there is upward pressure on prices.

Terry Ryder is the founder of hotspotting.com.au
ryder@hotspotting.com.au
twitter.com/hotspotting