Presented by Jones Partners

It is widely known that the Sydney rental market is currently under significant pressure.  Excessive demand, low vacancy, increased immigration, high cost of living and a growing population are all contributing to a tense climate. However, a competitive, high-cost rental market is no recent occurrence. So, what makes the current situation so extreme?

The pandemic was a period of uncertainty (and opportunity) for property owners, prospective investors and first home buyers. Whilst housing prices continued in an upwards trajectory, rental demand slowly started to fall at the start of 2020, with closed borders and paused immigration being the greatest contributors. Many investors saw this as an opportunity to sell their properties and cash-in on years of accrued capital gains whilst avoiding the uncertainties of the rental market during a global pandemic. The pandemic years further saw a significant spike in home owner-occupiers, with many taking advantage of seductive, low interest rates fixed for a two-year period. However, as the pandemic increasingly becomes an event of the past, this mass selloff of rental properties and the significant spike in home owner- occupiers, has created intense undersupply.

The consequences of these circumstances are ongoing. Households continue to experience significant pressures, with many struggling to maintain large mortgages, with an interest rate they can barely afford. Owner-occupiers are not the only ones impacted, with property investors of residential properties also experiencing significant challenges, through over exposure to excessive debt during volatile conditions. Whilst rental prices continue to peak at new highs, they simply cannot keep up with the rapidly changing mortgage rates that have been continually increasing alongside the RBA cash rate each month. Many investors have been forced to sell off properties in light of unfeasible returns, with no end in sight.

For many Australians, investing in real estate no longer makes financial sense given the current climate. New home construction is on the decline, with the industry undergoing significant turmoil and an influx in insolvencies caused by rising costs, supply chain issues, falling demand combined with the cruel inflexibility of fixed price contracts. These factors are all contributing to the ongoing rental crisis, which unfortunately, will not be easing anytime soon.