Sydney's tight rental market
It notes that a sudden and very sharp increase in rents in Sydney, as well as Brisbane and Darwin, can have had little to do directly with policy changes from the Federal Budget.
It's simply far too early for there to have been any meaningful changes in rental property availability, noted Domain.
June is also typically a quieter time of year for the rental market in any case:
Source: Domain
Instead, it seems as though landlords are positioning for a tighter rental market ahead and are pushing for higher rents opportunistically.
Sydney recorded the fastest increase in its rents in 4 years, while rental vacancies remained at record lows for the time of year:
Source: Domain
Looking ahead for the next two years, this looks like - for want of a better phrase - a 'perfect storm' for a prospective rental crisis, with fewer first homebuyers confident enough to buy, immigration still running at high levels, and apartment construction in danger of stalling.
All of which are dynamics which will add substantially to the pool of renters over the next couple of years.
The Greens have already called for a national rent freeze to combat rising rents.
Negative gearing reform
One of the longest-running debates in Aussie macro is the impact (or otherwise) of negative gearing reform on the rental market in the brief two-year period between July 1985 and July 1987, whereby rents surged significantly higher in Sydney and Perth, but far less so in other capital cities.
Stuart Wemyss with the chart, via LinkedIn:
Source: Stuart Wemyss, ProSolution
In truth, the only lucid memories I have of that time are of Tim Robinson and David Gower slaying the Aussies in the 1985 Ashes, and I certainly wasn't thinking about rental markets.
What I can remember was attending a corporate seminar in Sydney in 2008 during the financial crisis shock, and a number of affluent young professionals bemoaning exorbitant increases in their rents of up to 40 per cent.
Looking back through the archives, the official stats show that Sydney rents increased by 'only' 8 per cent in the tumultuous June 2008 quarter, though notably the rental price increases through the global financial crisis were often much sharper in inner- and middle-ring Sydney.
Source: Sydney Morning Herald
We're seemingly heading into a similar rental shock for Sydney housing market, but as implied by Stuart's chart above, it might well prove to be 12 months or more before the rental supply/demand imbalance definitively bites.
This time around we have significant changes to both negative gearing and to capital gains tax, meaning that there's very little incentive to become a landlord in the established market going forward, unless prices and rents move markedly (or were mortgage rates to fall sharply).
The biggest impact on rents is likely to be on the scarcer rental property types, such as 3-bedroom houses in Sydney's inner west, eastern suburbs, or lower north shore, for example.
In summary, then, it's early days, but there already seem to be plenty of challenges ahead for the new tax policies.
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