Melbourne Rental Vacancy to Fall on Undersupply, SQM says:

14 September 2017

Melbourne has a tight residential vacancy rate of 1.7 per cent and that will fall lower by 2019 as new housing supply slows due to less investment by local and foreign buyers, SQM Research says.

But while vacancy rates in Melbourne and Sydney (2percent) were unchanged in August from July, an improvement in other capitals painted the picture of residential markets in the rest of the country starting to move after years of stagnation or even being in reverse, the latest figures from consultancy SQM Research show.

The country's tightest residential market is Hobart, where the residential vacancy rate slipped to just 0.4 per cent last month - the lowest recorded for any capital since SQM started tracking the figures in 2005. Darwin recorded the sharpest decline for the month with vacancy rates falling to 2.5 per cent in August from 2.9 per cent July. The NT capital has now recorded seven straight months of falling vacancy rate, suggesting the downturn in its rental market is over.

Even Brisbane, already suffering a glut of apartments, also its vacancy rate tighten in August to 3.1 per cent from 3.3 per cent in July.

But with a vacancy rate of between 2 and 3 per cent indicating a market in equilibrium, the outlook for Melbourne backs up suggestions - such as that made by consultancy BIS Oxford Economics last week - that the city, like Sydney, will suffer from a shortage of dwellings, rather than a surplus.

"There is nothing in our numbers to suggest the market is about to be hit with oversupply," SQM managing director Louis Christopher said on Monday.

"Dwelling completions should peak in early 2018. And given the pronounced year-on-year declines in building approvals, we believe rents will likely rise at a faster pace in 2018 than what has been recorded in 2017, thus far. We now have mounting concerns for significant rental shortages in 2019 for Sydney and Melbourne."

Capital city asking rents rose 0.4 per cent to $549 a week for houses and were unchanged at $438 a week for units over the 30 days to September 12, SQM said on Monday. 

Over the past year, asking rents are up 2.4 per cent for houses adn 1.9 per cent for units. 

In line with its very tight vacancy rates, Hobart recorded the fastest pace in rental increases, with asking rents for houses gaining 4.2 per cent rise over the past 30 days and jumping 14.5 per cent from a year earlier. 

Industry group Urban Development Institute of Australia supports the argument of an undersupply in the Victorian capital. A report it published last month argues that new housing construction estimates based on dwellings approvals numbers regularly overestimate the number of new homes that will actually be created because the development of sites in established areas involves the demolition of at least one existing dwelling.

The UDIA's latest Residential Development Index says there was a gap between demand and supply of 4900 dwellings in 2016 and just over 4000 in 2017.

"There are currently discrepancies between what has been forecast, what we've planned for and what we're actually delivering when it comes to both the amount of new housing and the infrastructure needed for future communities," UDIA Victorian head Danni Addison said.

"Victoria is facing a looming and significant demand-supply gap with respect to housing, with net additional supply and demand forecasts showing clearly that we experienced a supply shortfall of approximately 9000 dwellings throughout the 2015-16 and 2016-17 financial years."

Mr Christopher, who last month said immigration should be cut to boost housing affordability - a notion panned by economists such as Saul Eslake and the UDIA - said the current tight vacancy rate meant rents were likely to rise.

"Overall the current rental market is a moderate landlord's market," he said.

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