1 00:00:05,880 --> 00:00:08,728 Sean Aylmer: Welcome to the Fear & Greed Business interview. I'm Sean Aylmer. 2 00:00:08,910 --> 00:00:13,168 Sean Aylmer: House rents hit a record high across almost every capital 3 00:00:13,170 --> 00:00:16,380 Sean Aylmer: city last month. On average, or at least the median, 4 00:00:16,440 --> 00:00:20,460 Sean Aylmer: it was $ 630 a week. It's the steepest quarterly gain 5 00:00:20,460 --> 00:00:24,450 Sean Aylmer: in 17 years and units aren't much better. The good 6 00:00:24,450 --> 00:00:27,240 Sean Aylmer: news is though the pressure on the rental market may 7 00:00:27,240 --> 00:00:31,319 Sean Aylmer: be about to ease. Dr. Nicola Powell is Domain's chief 8 00:00:31,320 --> 00:00:34,349 Sean Aylmer: of research and economics. Nicola, welcome back to Fear & Greed. 9 00:00:34,739 --> 00:00:36,719 Dr. Nicola Powell: Hi Sean. Thanks so much for having me again. 10 00:00:37,320 --> 00:00:42,510 Sean Aylmer: Let's talk houses. Crazy numbers. I mean, Sydney is ridiculously expensive, 11 00:00:43,229 --> 00:00:46,740 Sean Aylmer: but kind of nowhere is cheap. Even the lowest cost 12 00:00:46,740 --> 00:00:49,589 Sean Aylmer: housing, which I think in terms of homes, it's Hobart. 13 00:00:49,830 --> 00:00:50,790 Sean Aylmer: Even that's expensive. 14 00:00:51,839 --> 00:00:54,359 Dr. Nicola Powell: We have seen an extraordinary period, haven't we in our 15 00:00:54,360 --> 00:00:56,550 Dr. Nicola Powell: rental market? And when you look at a city like 16 00:00:56,550 --> 00:00:59,040 Dr. Nicola Powell: the Gold Coast, it's actually more expensive to rent in 17 00:00:59,040 --> 00:01:01,470 Dr. Nicola Powell: the Gold Coast than it is Sydney. We've got median 18 00:01:01,470 --> 00:01:06,809 Dr. Nicola Powell: house rents in the Gold Coast, $ 845 a week. So we've continued to 19 00:01:06,809 --> 00:01:09,299 Dr. Nicola Powell: see rents push higher. And when you look at unit 20 00:01:09,299 --> 00:01:12,840 Dr. Nicola Powell: rents, it's the 11th consecutive quarter of a unit rent 21 00:01:12,869 --> 00:01:15,539 Dr. Nicola Powell: rise across our combined capital. So that's the longest period 22 00:01:15,540 --> 00:01:20,160 Dr. Nicola Powell: of time we've ever seen of continuous increases in asking rents. 23 00:01:21,030 --> 00:01:23,250 Sean Aylmer: Tell me, with the unit rents, they're not that much 24 00:01:23,250 --> 00:01:25,860 Sean Aylmer: below house rents. Has that always been the case? I 25 00:01:25,860 --> 00:01:27,359 Sean Aylmer: mean, I've lived in a house for so many years, 26 00:01:27,360 --> 00:01:29,670 Sean Aylmer: I've forgotten what it's like to rent a unit, but 27 00:01:30,299 --> 00:01:31,500 Sean Aylmer: are they always that close? 28 00:01:32,160 --> 00:01:34,620 Dr. Nicola Powell: Sometimes actually there's been a period of time where they've 29 00:01:34,620 --> 00:01:37,170 Dr. Nicola Powell: been exactly the same across the combined capitals. And I 30 00:01:37,170 --> 00:01:40,708 Dr. Nicola Powell: think when you think about it it makes sense because units 31 00:01:40,709 --> 00:01:44,129 Dr. Nicola Powell: are heavily dominated by our major capital cities, Sydney, Melbourne, 32 00:01:44,130 --> 00:01:47,670 Dr. Nicola Powell: Brisbane, which are typically more expensive. And also units that 33 00:01:47,670 --> 00:01:50,550 Dr. Nicola Powell: are rented tend to be in that really prime inner 34 00:01:50,550 --> 00:01:53,880 Dr. Nicola Powell: city location, which also comes at a premium price tag. 35 00:01:54,270 --> 00:01:57,840 Dr. Nicola Powell: So it's not surprising that they're very similar. And when 36 00:01:57,840 --> 00:02:00,599 Dr. Nicola Powell: you think about house rents or houses for rent, they 37 00:02:00,599 --> 00:02:02,279 Dr. Nicola Powell: tend to be in those kind of middle and more 38 00:02:02,280 --> 00:02:04,709 Dr. Nicola Powell: outer suburbs. So I think what you're getting is actually 39 00:02:04,709 --> 00:02:05,399 Dr. Nicola Powell: very different. 40 00:02:05,969 --> 00:02:09,450 Sean Aylmer: Okay, so the bottom line here, what's driving it? Why 41 00:02:09,450 --> 00:02:12,600 Sean Aylmer: are we having these incredible rent increases? 42 00:02:13,410 --> 00:02:16,108 Dr. Nicola Powell: Look, and I think it's a variety of different factors 43 00:02:16,110 --> 00:02:20,309 Dr. Nicola Powell: because there's no one item that has occurred to create 44 00:02:20,309 --> 00:02:22,529 Dr. Nicola Powell: these conditions that we've got. And when you look at 45 00:02:22,529 --> 00:02:25,410 Dr. Nicola Powell: Australia wide, we've got a record low vacancy rate still 46 00:02:25,710 --> 00:02:29,489 Dr. Nicola Powell: at 0. 7% is being driven by our combined capitals. 47 00:02:29,490 --> 00:02:33,298 Dr. Nicola Powell: Regional Australia is actually starting to see some alleviated pressure, 48 00:02:33,540 --> 00:02:37,469 Dr. Nicola Powell: but we've seen strong population growth, particularly from overseas. We've 49 00:02:37,469 --> 00:02:42,420 Dr. Nicola Powell: seen record levels of overseas migration. We've seen the cost 50 00:02:42,450 --> 00:02:45,179 Dr. Nicola Powell: to purchase and become a first home buyer has become 51 00:02:45,180 --> 00:02:48,780 Dr. Nicola Powell: really stretched. And so there's affordability barriers of keeping people 52 00:02:48,780 --> 00:02:52,050 Dr. Nicola Powell: within the rental market for longer. One of the big 53 00:02:52,050 --> 00:02:55,440 Dr. Nicola Powell: trends as well is we saw more households being formed 54 00:02:55,440 --> 00:02:58,230 Dr. Nicola Powell: during the pandemic. So what that basically means is there 55 00:02:58,230 --> 00:03:00,720 Dr. Nicola Powell: were fewer of us in each home, which meant that 56 00:03:00,720 --> 00:03:02,760 Dr. Nicola Powell: we need more houses to house the same amount of 57 00:03:02,760 --> 00:03:05,940 Dr. Nicola Powell: Australians. Now what we've got currently is still there's fewer 58 00:03:05,940 --> 00:03:08,940 Dr. Nicola Powell: people per household across our combined capitals than there were pre- 59 00:03:08,940 --> 00:03:13,858 Dr. Nicola Powell: pandemic. So that's also still placing pressure, and also investment 60 00:03:13,860 --> 00:03:16,288 Dr. Nicola Powell: activity. I mean, clearly we just haven't had enough investment 61 00:03:16,288 --> 00:03:19,020 Dr. Nicola Powell: activity to meet the level of demand that we've got. 62 00:03:19,290 --> 00:03:21,270 Dr. Nicola Powell: And to balance out, here's a stat for you. I 63 00:03:21,270 --> 00:03:24,750 Dr. Nicola Powell: love a good stat. To balance out today's rental market, 64 00:03:25,080 --> 00:03:28,798 Dr. Nicola Powell: we need between 40 to 70, 000 additional rentals. 65 00:03:29,669 --> 00:03:33,810 Sean Aylmer: Okay. So the most recent run of ABS data on 66 00:03:33,870 --> 00:03:37,379 Sean Aylmer: new housing constructions and things like that, it's nowhere near 67 00:03:37,379 --> 00:03:37,949 Sean Aylmer: that though, is it? 68 00:03:38,549 --> 00:03:42,600 Dr. Nicola Powell: No, it's challenging because you've got the cash rate moving 69 00:03:42,600 --> 00:03:45,030 Dr. Nicola Powell: higher to slow down the economy, but that also has 70 00:03:45,030 --> 00:03:48,900 Dr. Nicola Powell: the adverse impacts on the construction sector. And the construction 71 00:03:48,900 --> 00:03:52,529 Dr. Nicola Powell: sector is really strange and the feasibility of projects don't 72 00:03:52,529 --> 00:03:56,010 Dr. Nicola Powell: stack up. So it means that our dwelling starts and 73 00:03:56,010 --> 00:03:59,790 Dr. Nicola Powell: housing approvals have really dropped. So it is concerning. It's 74 00:03:59,790 --> 00:04:03,180 Dr. Nicola Powell: concerning moving forward what that means for overall supply because 75 00:04:03,750 --> 00:04:05,880 Dr. Nicola Powell: we've not only got a very tight rental market, we've 76 00:04:05,880 --> 00:04:08,369 Dr. Nicola Powell: also seen a fully recovered housing market in terms of 77 00:04:08,370 --> 00:04:13,200 Dr. Nicola Powell: pricing. And it really just showcases for me the undersupply 78 00:04:13,200 --> 00:04:15,270 Dr. Nicola Powell: of housing we generally have across Australia. 79 00:04:15,900 --> 00:04:17,849 Sean Aylmer: Stay with me. Nicola will be back in a minute. 80 00:04:25,049 --> 00:04:27,599 Sean Aylmer: My guest this morning is Dr. Nicola Powell, chief of 81 00:04:27,599 --> 00:04:31,469 Sean Aylmer: research and economics at Domain. So what are we looking 82 00:04:31,470 --> 00:04:36,150 Sean Aylmer: for? Is this an issue that will naturally rework itself 83 00:04:36,150 --> 00:04:38,639 Sean Aylmer: and come back into balance or do we need some 84 00:04:38,639 --> 00:04:39,599 Sean Aylmer: government help here? 85 00:04:40,678 --> 00:04:42,570 Dr. Nicola Powell: Look, I think it's probably a little bit of both. 86 00:04:43,290 --> 00:04:46,379 Dr. Nicola Powell: I think there's a variety of different solutions, and part 87 00:04:46,379 --> 00:04:50,190 Dr. Nicola Powell: of that is things like increased social housing, additional rental 88 00:04:50,190 --> 00:04:55,170 Dr. Nicola Powell: assistance for those low- income households to really assist because 89 00:04:55,170 --> 00:04:58,139 Dr. Nicola Powell: we've seen such a dramatic change in asking rents. I 90 00:04:58,139 --> 00:05:00,420 Dr. Nicola Powell: also think it's things like build to rent. And we 91 00:05:00,420 --> 00:05:03,089 Dr. Nicola Powell: know Melbourne's leading the way really of all the cities 92 00:05:03,089 --> 00:05:05,520 Dr. Nicola Powell: in terms of build to rent. And we need greater 93 00:05:05,520 --> 00:05:07,770 Dr. Nicola Powell: levels of investment activity, but we also on top of 94 00:05:07,770 --> 00:05:10,800 Dr. Nicola Powell: that, need greater levels of supply. We've got the housing 95 00:05:10,800 --> 00:05:14,639 Dr. Nicola Powell: cord and that kind of 1. 2 million homes over 96 00:05:14,639 --> 00:05:17,488 Dr. Nicola Powell: the next five years. We needed to really make sure 97 00:05:17,490 --> 00:05:19,919 Dr. Nicola Powell: that we deliver that because I think it really does 98 00:05:19,920 --> 00:05:22,619 Dr. Nicola Powell: showcase the lack of overall housing supply that we have 99 00:05:22,619 --> 00:05:23,249 Dr. Nicola Powell: in Australia. 100 00:05:24,059 --> 00:05:26,130 Sean Aylmer: What does it mean for society? I mean, this is kind of 101 00:05:26,130 --> 00:05:29,040 Sean Aylmer: a bit of a philosophical question, Nicola, but when you 102 00:05:29,040 --> 00:05:32,640 Sean Aylmer: don't have housing, what are the flow on effects for society? 103 00:05:33,270 --> 00:05:37,080 Dr. Nicola Powell: They're big and it's probably not spoken about enough, and 104 00:05:37,080 --> 00:05:41,639 Dr. Nicola Powell: that is the underhoused, those people that are underhoused in Australia, which 105 00:05:41,639 --> 00:05:44,520 Dr. Nicola Powell: means that they're not living in a dwelling to suit 106 00:05:44,520 --> 00:05:47,279 Dr. Nicola Powell: their needs, which means there's too many people in that 107 00:05:47,279 --> 00:05:51,899 Dr. Nicola Powell: particular dwelling, or it means that the dramatic scenario is 108 00:05:52,170 --> 00:05:54,988 Dr. Nicola Powell: they're literally on the streets. I think that for a 109 00:05:54,990 --> 00:05:59,219 Dr. Nicola Powell: country like Australia, we really should better at providing housing. 110 00:05:59,520 --> 00:06:02,339 Dr. Nicola Powell: I think that starts at government in terms of releasing 111 00:06:02,339 --> 00:06:05,430 Dr. Nicola Powell: land and making sure land is at shovel ready stage 112 00:06:05,610 --> 00:06:08,789 Dr. Nicola Powell: and affordable for developers to come in. And when you think about the 1. 113 00:06:08,789 --> 00:06:13,498 Dr. Nicola Powell: 2 million homes, most of that is going to be 114 00:06:13,500 --> 00:06:17,849 Dr. Nicola Powell: delivered by developers. It's a very small portion of that that is actually 115 00:06:17,850 --> 00:06:22,920 Dr. Nicola Powell: social housing. So I think that the social implications are 116 00:06:22,920 --> 00:06:25,140 Dr. Nicola Powell: obviously very large, but I think that we need to, 117 00:06:25,140 --> 00:06:28,320 Dr. Nicola Powell: as a society really address the overall supply shortage that 118 00:06:28,320 --> 00:06:28,770 Dr. Nicola Powell: we have. 119 00:06:29,880 --> 00:06:32,369 Sean Aylmer: So if that's the case, is there an argument for... 120 00:06:32,580 --> 00:06:34,799 Sean Aylmer: You said investment activity has come off, is there an 121 00:06:34,799 --> 00:06:38,549 Sean Aylmer: argument to try and incentivize these developers, which of course 122 00:06:38,550 --> 00:06:43,200 Sean Aylmer: is politically very difficult to start building more properties. You 123 00:06:43,200 --> 00:06:46,710 Sean Aylmer: also have all the state and local rules around properties 124 00:06:46,710 --> 00:06:49,050 Sean Aylmer: and that kind of seems very difficult. 125 00:06:49,799 --> 00:06:52,409 Dr. Nicola Powell: It's very difficult. I think the red tape that developers 126 00:06:52,410 --> 00:06:55,440 Dr. Nicola Powell: have to jump through, the NIMBY effect that we have 127 00:06:55,440 --> 00:06:59,670 Dr. Nicola Powell: seen gain momentum, and we've got a rising cohort of 128 00:06:59,670 --> 00:07:03,270 Dr. Nicola Powell: YIMBY, Yes In My Back Yard. These are all things 129 00:07:03,270 --> 00:07:06,750 Dr. Nicola Powell: that influence, and I think this is where we really 130 00:07:06,750 --> 00:07:10,260 Dr. Nicola Powell: as a society and as government have a period of 131 00:07:10,260 --> 00:07:12,689 Dr. Nicola Powell: time where we can be really visionary in our attitude 132 00:07:12,690 --> 00:07:15,119 Dr. Nicola Powell: and ensuring that we are developing the suburbs of the 133 00:07:15,120 --> 00:07:18,840 Dr. Nicola Powell: future and building the number of homes that we need 134 00:07:18,840 --> 00:07:22,290 Dr. Nicola Powell: to meet the growing population, which history has really shown 135 00:07:22,290 --> 00:07:24,570 Dr. Nicola Powell: us that we are not really great at actually doing that. 136 00:07:25,259 --> 00:07:27,509 Sean Aylmer: Okay. So that's kind of the big picture stuff. I 137 00:07:27,509 --> 00:07:29,070 Sean Aylmer: just want to go back to where we started, which 138 00:07:29,070 --> 00:07:31,740 Sean Aylmer: was some of the actual prices. Something that I always 139 00:07:31,740 --> 00:07:34,110 Sean Aylmer: look at is Melbourne. Melbourne is... I mean, I think 140 00:07:34,110 --> 00:07:38,550 Sean Aylmer: it's the second- lowest median price for houses during the 141 00:07:38,550 --> 00:07:41,219 Sean Aylmer: month of March. Why is Melbourne so much cheaper than 142 00:07:41,219 --> 00:07:42,450 Sean Aylmer: some of those other cities? 143 00:07:43,559 --> 00:07:47,310 Dr. Nicola Powell: Look, Melbourne's been really interesting because it was obviously impacted 144 00:07:47,520 --> 00:07:50,040 Dr. Nicola Powell: by the pandemic more so and the vacancy rate at 145 00:07:50,040 --> 00:07:52,679 Dr. Nicola Powell: a city- wide level bounced to over 5%. And we 146 00:07:52,680 --> 00:07:55,890 Dr. Nicola Powell: saw a significant pullback in rental price. And at that 147 00:07:55,890 --> 00:07:57,870 Dr. Nicola Powell: time, what we saw is all of the other capital 148 00:07:57,870 --> 00:08:01,830 Dr. Nicola Powell: cities saw rapid rates of rental price growth. And there was 149 00:08:01,830 --> 00:08:04,079 Dr. Nicola Powell: a long period of time where actually Melbourne was the 150 00:08:04,080 --> 00:08:07,740 Dr. Nicola Powell: cheapest place to rent a house across Australia. It's slightly 151 00:08:07,740 --> 00:08:10,020 Dr. Nicola Powell: changed because what we've seen now is that vacancy rate 152 00:08:10,020 --> 00:08:12,660 Dr. Nicola Powell: has shrunk in Melbourne, and that's because a lot of 153 00:08:12,690 --> 00:08:17,220 Dr. Nicola Powell: investors have actually offloaded their properties across Melbourne, shrinking supply. 154 00:08:17,610 --> 00:08:20,490 Dr. Nicola Powell: And what that means is we've seen an acceleration now of rental 155 00:08:20,490 --> 00:08:23,459 Dr. Nicola Powell: growth, but I think the previously strong markets of the 156 00:08:23,459 --> 00:08:26,760 Dr. Nicola Powell: other capital cities are still pipping them much higher. But 157 00:08:27,090 --> 00:08:30,210 Dr. Nicola Powell: it was the first quarter this year that we saw 158 00:08:30,210 --> 00:08:34,290 Dr. Nicola Powell: Hobart now become the most affordable city to rent, overtaking Melbourne. 159 00:08:34,770 --> 00:08:37,830 Sean Aylmer: So Brisbane, Adelaide and Perth are all at record highs 160 00:08:37,830 --> 00:08:41,279 Sean Aylmer: in terms of home prices. What's that mean for rental 161 00:08:41,279 --> 00:08:44,220 Sean Aylmer: markets there over the next 1, 2, 3 years? 162 00:08:45,360 --> 00:08:48,900 Dr. Nicola Powell: Look, you mentioned Perth there. Perth's a really interesting market, 163 00:08:48,900 --> 00:08:52,078 Dr. Nicola Powell: and I think over the next couple years, one or 164 00:08:52,080 --> 00:08:54,540 Dr. Nicola Powell: two years, Perth is still going to be really strained 165 00:08:54,540 --> 00:08:57,030 Dr. Nicola Powell: because I think the conditions that we're currently seeing in 166 00:08:57,030 --> 00:08:59,399 Dr. Nicola Powell: Perth are almost mimicking what we did see during the 167 00:08:59,400 --> 00:09:03,809 Dr. Nicola Powell: mining boom. And we've seen continued strong population growth coming 168 00:09:03,809 --> 00:09:06,330 Dr. Nicola Powell: from interstate, which is a reverse of what the state 169 00:09:06,330 --> 00:09:10,320 Dr. Nicola Powell: was seeing previously. And obviously strong levels of overseas migration 170 00:09:10,590 --> 00:09:13,589 Dr. Nicola Powell: has a record low vacancy rate, is the tightest capital 171 00:09:13,590 --> 00:09:16,500 Dr. Nicola Powell: city rental market in Australia at 0. 3%. And as 172 00:09:16,500 --> 00:09:19,620 Dr. Nicola Powell: you rightly said, it's got record pricing too. I think 173 00:09:19,620 --> 00:09:22,679 Dr. Nicola Powell: there's an element though that Perth is attracting investors because 174 00:09:23,220 --> 00:09:26,220 Dr. Nicola Powell: it's got greater yields and it's much more affordable to 175 00:09:26,220 --> 00:09:30,179 Dr. Nicola Powell: purchase into. But to answer your question as well, I 176 00:09:30,179 --> 00:09:31,588 Dr. Nicola Powell: do think that we're going to reach a bit of 177 00:09:31,590 --> 00:09:34,289 Dr. Nicola Powell: a tipping point in the rental market, and we are 178 00:09:34,289 --> 00:09:37,170 Dr. Nicola Powell: still optimistic that that's actually going to occur sometime this 179 00:09:37,170 --> 00:09:41,098 Dr. Nicola Powell: year. We've got to be realistic that incomes haven't grown 180 00:09:41,100 --> 00:09:44,578 Dr. Nicola Powell: at the same rate as rents and incomes are stretched 181 00:09:44,700 --> 00:09:47,610 Dr. Nicola Powell: in the rental space. And what we are already seeing 182 00:09:47,610 --> 00:09:50,129 Dr. Nicola Powell: is people are shuffling in terms of they're looking to 183 00:09:50,130 --> 00:09:53,580 Dr. Nicola Powell: more affordable suburbs, they're getting a housemate, they are cost- 184 00:09:53,580 --> 00:09:55,830 Dr. Nicola Powell: cutting in every way that they can. But there are 185 00:09:55,830 --> 00:09:59,280 Dr. Nicola Powell: other signs where we're actually starting to see eased conditions at 186 00:09:59,280 --> 00:10:02,370 Dr. Nicola Powell: different suburbs even within our capital cities. We've now got 187 00:10:02,370 --> 00:10:05,338 Dr. Nicola Powell: some suburbs actually falling in terms of their asking rent. 188 00:10:05,730 --> 00:10:07,860 Dr. Nicola Powell: And one of the prime reasons that we do think 189 00:10:07,860 --> 00:10:09,779 Dr. Nicola Powell: a tipping point is still going to be reached at 190 00:10:09,780 --> 00:10:13,199 Dr. Nicola Powell: some point is the number of potential tenants per listing 191 00:10:13,200 --> 00:10:17,040 Dr. Nicola Powell: has been declining. Now that's a pretty much entrenched trend. 192 00:10:17,280 --> 00:10:20,130 Dr. Nicola Powell: We've been seeing that decline for about 18 months now, 193 00:10:20,309 --> 00:10:22,108 Dr. Nicola Powell: and what we believe is that is going to be 194 00:10:22,110 --> 00:10:26,220 Dr. Nicola Powell: an early indication of the vacancy rate will eventually track higher. 195 00:10:26,610 --> 00:10:28,949 Sean Aylmer: Let's hope so. Nicola, thank you for talking to Fear & Greed. 196 00:10:29,340 --> 00:10:29,909 Dr. Nicola Powell: Thank you. 197 00:10:30,629 --> 00:10:33,750 Sean Aylmer: That was Dr. Nicola Powell, Domain's chief of research and 198 00:10:33,750 --> 00:10:37,020 Sean Aylmer: economics. This is the Fear & Greed daily interview. Join us 199 00:10:37,020 --> 00:10:39,509 Sean Aylmer: every morning for the full episode of Fear & Greed, daily 200 00:10:39,510 --> 00:10:42,690 Sean Aylmer: business news for people who make their own decisions. I'm 201 00:10:42,690 --> 00:10:44,279 Sean Aylmer: Sean Aylmer. Enjoy your day.