Will Sydney’s rental crisis see a return of investors?

With the worst of the pandemic fallout seemingly behind us here in Australia, and freshly opened international borders, it’s become clear that some of our capital cities, Sydney included, are experiencing lower vacancy rates.  Dropping to it’s lowest level since November 2017, Sydney’s vacancy rate fell to a record low of 1.7% in Feb this year, down from 1.9% in January (Source: Domain Rental Vacancy Rate Report).

Domain chief of research and economics Dr Nicola Powell said Australia was on the verge of a rental crisis. She believes that rental demand will continue to sharply rebound following the full reopening of the international borders to double-vaccinated visa holders and tourists after two years of closures, adding the resurgence in demand will be predominantly seen in the two biggest capital cities, which are “destination hotspots”.

Causing more pain for tenants, who have struggled with less choice and compromising on quality over the years, it is becoming increasingly more difficult for those on the rental ladder, who are finding themselves in a highly competitive environment.

Leo Patterson-Ross, chief executive of the Tenants’ Union of NSW said  “It is true to say we have been in a crisis for many, many years, and we are sinking deeper into it because we’re not taking the goals of housing the community of NSW seriously”

Coupled with 2 years of increasing un-affordability in the housing market, particularly in our two largest cities of Sydney and Melbourne, with capital growth for housing alone eclipsing 35%+ across several suburbs, it’s not surprising investors haven’t been able to keep up.  Despite an upsurge in home buying activity, leading to unprecedented accelerated growth levels, it’s mainly been owner occupiers leading the charge.

Here at House Search, home buyers have made up the overwhelming majority of our clients since 2020.  The pandemic certainly instilled an urge for foundational roots here in Sydney, with many buyers telling us they wanted to put their money into something solid, safe and traditionally secure. With less discretionary spending, record low interest rates along with many now working semi-permanently from home, the principal place of residence (PPOR) became the place of focus.

Investors, on the other hand, were thin on the ground.  Despite cheap credit, sharp price increases kept many away, and coupled with less-than-attractive vacancy rates, we noticed a definite exodus in investor enquiry from the market compared to previous years. With our housing dollar buying less, intel from enquiries was directed to regional areas, other capital cities with more affordable price tags, along with alternative investments.

According to Louis Christopher from SQM Research, in the past 12 months, regional dwelling prices have jumped by 25.9% compared to 21% growth for the combined capital cities. During the December quarter, the regions have risen more than twice as fast as the capitals.  A sure sign that those who didn’t have to commute to the CBD for work, decided on regionals instead.

With a new looming rental shortage, investors may again turn their attention towards our capital cities. Whilst the housing median price has climbed and is unaffordable for some, medium and high density dwellings still offer value and with a new wave of tenants returning timing may be ripe for investors to once again consider options here in property as an asset class.