Canberra’s rental crisis
28 March 2018
Two notable things occurred in the ACT property market last week. In a single night, Geocon sold 250 apartments (more than half) in the Grand Central Towers development, eclipsing the previous sales record for a market launch. And, according to CoreLogic RP Data, Canberra recorded the highest weekend auction clearance rate in Australia. Property in Canberra is indeed in high demand, for both buyers and renters.
There is no denying we have a rental crisis in the ACT. While Canberra’s rental market is one of the strongest in Australia (and recent figures show it’s getting stronger), the January 2018 data from SQM Research shows the asking rent for a Canberra house averaged $616 a week and a unit $436 a week. These prices stretch low income renters’ ability to make payments and make it a struggle to save a deposit to buy their own home. There is little to no housing choice for people in Canberra, now or in the immediate future. Prospective tenants are queueing up to apply for rental properties, let alone secure one.
So, why is our city’s rental market in crisis and what can we do about it?
Canberra is exploding. We have the highest jobs growth, lowest unemployment, highest wages and highest average education in the country. We are a hub for higher education. When the federal government needs to increase its workforce, they spend their money here first. We are one of Australia’s fastest-growing cities. In the next three years, according to the ACT Government, Canberra’s population will grow by 25,000 and reach 480,000 by the year 2030. However, judging by recent strong apartment sales and interstate immigration, our population is more likely to be around 600,000 people by 2030.
The booming population is driving demand for property and underpinning the rental crisis in Canberra. We can’t provide enough property to the rental market today, let alone accommodate future growth.
Independent data released during the past year confirms this trend. For example, in January this year after Canberra broke a record for median house rent (recording the strongest quarter-on-quarter growth compared to all other capital cities) Domain reported: “We are seeing a strong market and one of the big changes we’ve seen… is the fact that we have a strong level of population growth.”
Anglicare’s 2017 Rental Affordability Snapshot revealed that only 2.3 per cent of ACT and Queanbeyan rental properties were within reach of minimum-wage families, compared with four per cent in Sydney and 40 per cent in other capitals. Anglicare described the situation as “catastrophically dire”.
The Rental Affordability Index released at the end of 2017 by SGS Economics and Planning examined ACT rents, revealing that in Canberra more than any other city in Australia the average income is very high. “For high income earners rents are very affordable but it pushes the average price up. The bottom end of the market is really struggling.”
CoreLogic RP Data’s report, Market Trends Capital Cities, published this month, records rents jumping in 2017 after a period of stagnation. “This has really been quite a big contrast to what we’ve been seeing over the past five years or so…we’re definitely seeing rental demand growing,” a spokesman said.
So, what’s behind this demand? The ACT has higher education rates, double those elsewhere in Australia. We have high public-sector employment and low unemployment and our residents on average earn larger disposable incomes than other Australians. While this well-paid group generally can afford more expensive housing, the insufficient supply in Canberra has put upward pressure on rental prices.
Add low interest rates and people moving to Canberra for employment and education opportunities into the mix, and we have a recipe for a vacancy rate consistently hovering between one and two per cent, with the latest figures showing less than one percent. Only the Sydney apartment market is more expensive than Canberra. Just think about that. Canberra has the second highest apartment rents of anywhere in Australia; higher than Melbourne, Brisbane and Adelaide. No wonder people are finding it tough.
What can be done?
Basic economics demonstrates that the quickest and most efficient way to ease the market for renters is to increase supply. We need to bring more properties to market for both investors (who provide options for renters) and first home buyers, who then free up rental accommodation when they move into their own home. More demand means prices go up. More supply, prices ease. What we need to do is accommodate the demand for property in Canberra, and Geocon is the leader in meeting these demands.
We know there is no oversupply of property in Canberra because if there was, Geocon wouldn’t have sold 250 apartments in one development, in one sitting, last week. Interest in Grand Central Towers is the strongest we’ve seen for any of our developments to date. Apartments in Canberra are in short supply; if there were plenty of them, they’d be cheaper, and the rental vacancy rate wouldn’t be virtually zero.
Canberra also needs to encourage more investors into the market. Although some believe it, investors are not primarily responsible for bumping up prices and keeping first home buyers out of the market. They are, in fact, a valuable source of rental housing, particularly here where the market is so tight. Dissuading or disregarding investors will reduce the number of properties available for rent and put further pressure on the rental market.
Geocon is helping to address the rental crisis and getting people out of the rental loop and into their own homes by creating affordable housing and using innovative financing methods. Also, we are attracting investors, which in turn increases the supply of rental stock. In addition, our developments are leveraging infrastructure initiatives like the light rail, helping to breathe new life into town centres like Woden and in this way, we are building communities.
The really important thing for Canberra right now is to maintain the momentum of well-designed, high-rise, high-density development in the CBD and town centres so we are in an excellent position as a city to sustainably and affordably meet the growing demand for housing in the coming years. If we don’t, the rental crisis will only get worse.
28 March 2018