Rents have been largely in the doldrums over the last 18 months. At least anywhere that attracts any demand from tertiary students and the CBD have anyway. And the negative influence on prices isn’t about to suddenly disappear, with our borders likely to stay closed to international students for quite a while yet.
But just as with mining cycles, the seeds of the next boom are often set in the bad times. Several factors are now in play that will continue to build to raise rents significantly over the next couple of years. Rental laws, booming sales prices and the return of overseas students will all play their part.
The new rental laws have made owning an investment property less attractive. Costs incurred in routine required safety checks and land tax have jumped, owners have less control, and the cost of management will also increase. The latter one is due to yet more regulatory changes coming later this year, which will make it much harder to obtain a licence to operate as an agent (the course will be 6 times longer and 6-8 times more expensive). Fewer agents means higher income to employ a property manager.
Booming property prices attract owners to sell investment properties; especially when returns are flat and regulation continues to make owning a rental more expensive. Combined with a seemingly never-ending rebalancing of rights in favour of renters, many long-term investors are simply giving up. Agents are now seeing their loyal rental providers (landlords) instruct them to sell. Sure, some are still being purchased by investors, but the number of rentals is starting to drop. In changing laws with the stated intention of greater renter protection, the law of unintended consequence is starting to apply.
The final piece of the puzzle is the eventual return of international travel. When it finally returns, it will feed into the building pressure that has already started on rental prices and then things will get interesting. Whilst this process is unlikely to see any quick increases, the seeds of change have already been sown; price rises of some significance are on their way.