Australia's rental crisis is set to worsen and sharp rises in rents will continue for at least four years as Capital cities shrinking rental housing supply, especially in Sydney, will take years to ease a report warns.
Rents will jump due to a dramatic fall in the number of apartments built this financial year, the report by industry analysts BIS Shrapnel says.
BIS Shrapnel is predicting apartment rents will rise 42 per cent in the five years to June 2011 - equating to an average of 7.3 per cent every year.
Report author Angie Zigomanis said, since investors began to leave the property market two years ago, off-the-plan sales, which trigger building, had fallen sharply.
"Most new apartment developments won't go ahead until they have sold enough off-the-plan to get enough money to get finance,'' he said.
"At the moment there are no investors in the market to do those pre-sales. The lag between off-the-plan apartment sales and completion means that, even if investors do return, it would take some years before their purchases are translated to new rental supply. The deficiency of rental dwellings will potentially be sustained through to 2011 and beyond.''
Weak growth in the cost of rent in recent years would lead to sharp rises as a shortage of rental stock emerged this year. Rents would rise 7.3 per cent each year, or 42 per cent over the next five years.
But investors would have to wait until mid-next year to see a better return in property prices.
He said two to three years of rental growth was necessary before yields improved to a level which would draw investors back to the apartment market.
"In many instances the value of investment apartments in Sydney has declined in the past two to three years,'' Mr Zigomanis said.
Prices would remain static or decline marginally over the next financial year.
Mr Zigomanis said a peak in vacancy rates in 2003 and lower rental returns had deterred investors.
"A peak in vacancy rates lead to static rents and low rental returns which caused investors to beat a retreat,'' Mr Zigomanis said.
"Since investors have left the market, pre-sales which trigger construction have fallen away and new apartment completions have been drying up.
"Consequently, we expect new apartment completions will show a dramatic decline over 2006/07.''
In June last year, Sydney rents were 6 per cent lower than the June 2000 peak, adjusted for inflation, after showing increases below long-term trends.
Sydney's rental vacancy rate was 1.6 per cent in January, according to Real Estate Institute of NSW figures.
"While attention was focused on rising interest rates last year, the situation for tenants was steadily worsening,'' REINSW president Cristine Castle said.
"The NSW Government needs to take immediate action to encourage investors to enter the property market, which would provide more accommodation for tenants,'' she said.
Sources: Daily Telegraph and AAP
