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Friday, 9 December 2022

Severe rentals shortage forecast for 2023

Global rental pressues

Disinflation or deflation is likely to be a key theme for 2023...but not for residential property rents.

The trend towards working from home has shifted demand away from office space and into the residential market, with seemingly every renter in the market now wanting an extra bedroom. 

Office rents are falling hard for vacant B-grade and C-grade stock, and as office valuations eventually collapse eventually much of the lower quality office stock may ultimately be converted into apartments.

That's not going to happen any time soon, though, with very few developers willing to take on new capex risk in the current environment.

Rents are rising all over the world as a result of these trends.

The UK residential market recorded an increase over more than 12 per cent in rental prices over the past year, with more increases forecast in 2023, according to Hometrack.

Source: Hometrack

Demand has dropped in Hong Kong as expatriates move quickly away from Chinese rule, but expats in Singapore are reportedly facing rent increases of around 70 per cent

In Dublin the rentals situation has moved beyond diabolical, with effectively nothing on the market, and rents up by as much as 24 per cent over the past year alone, and no end in sight. 

Closer to home in south-east Queensland, Facebook notice boards are clogged up with new arrivals looking for rooms to rent (or initially sleeping in cars, campervans, and on park benches) while renters clamour for the few available share houses on the market

Aussie outlook

in Australia, CoreLogic reported rents rising sharply over the year to November, and accelerating for units. 

All of the major capital cities saw unit rents up by close to 15 per cent over the past year.

Source: CoreLogic

Knight Frank anticipates a severe shortage of rentals in 2023, and forecasts rents exploding in 2023 as a result.

Source: Knight Frank

Knight Frank notes that permanent migration of 195,000 next year will be a key factor, alongside supply shortages related to flooding.

While this is true, it likely vastly underestimates the reality - with the massive rebound in temporary visa issuance population growth in 2023 is likely to comfortably hit an all-time high.

With construction and building approvals now slowing, and first homebuyer numbers falling, there's apparently little respite on the horizon.

It's very hard for investors to step up the plate, with the regulator requiring landlord mortgages to be stress-tested for an extraordinary 300 basis points lending assessment buffer, despite full employment, zero vacancy rates, and rocketing rents. 

With the cash rate target now higher than the 3-year bond yield this makes zero sense after 300 basis points of hikes have already been delivered - it's a nanny state setting which is crushing the rental market.