Vacancy rates tighten a little: Pete Wargent

SQM's data showed that while rents in the largest capitals had increased ahead of the headline rate of inflation over the past year, asking rents for houses in Darwin have crashed by -21.3 per cent, while asking rents for houses in Perth were also down by -8.1 per cent.

Asking rents for houses were up strongly in Hobart (+6.7 per cent) as the market tightens, with vacancy rates in the Tasmanian capital now at just 1.1 per cent. 

 

 

Despite very strong levels of approvals and construction, vacancy rates have actually decreased in Sydney and Melbourne over the past year.

 

How so? One of the clues might be found in the ABS Population by Age & Sex data which I analysed recently. 

And that is that population growth has become increasingly focussed on the inner and middle ring suburbs of the largest capital cities, both cause and effect of the natrure of the supply response through this cycle, as well as emerging employment trends. 

There is, however, still a high volume of apartment approvals in the pipeline in all three of largest capitals.

As the above charts show over the long run the population growth to absorb the new supply has been evident, while much of the new high rise stock isn't that appealing to homebuyers in any case. 

 

Meanwhile, driven by a Sydney economic boom the New South Wales economy has added a thumping +118,800 jobs over the past 12 months.

 

It should therefore be little surprise that interstate migration away from the Premier State had recently declined to its lowest level on record. 

 

 

Overall, not much sign of rising vacancy rates in the two largest capitals in this release, but SQM's Louis Christopher does see vacancies rising over the year ahead.

And I agree, With the strength of the dwelling construction cycle underway this must surely be the case.

 

On a related note, dwelling construction surprisingly detracted from GDP growth in the second quarter, which would appear to be an anomalous result given the veritable forest of cranes on the city skylines.

 

While I'm not in the business of issuing flash forecasts for GDP - a fool's errand if ever there was one - it wouldn't be a surprise to me to see dwelling construction and a positive reversal in net exports (and possibly, inventories) leading to a +0.5 per cent result for Q3, before quarterly growth of +0.7 per cent returning for the next few quarters thereafter. 

 

That said, whether or not household consumption and public/government investment can continue to produce the positive contributions that they did in Q2 is another question.