Supply & Demand Trends Look Stable
For any real estate investors looking at the Sydney housing market I think that one of the best overviews of activity is provided by the regular figures published by the NSW Rental Bond Board, and I have used their reports in the past, as they always make interesting reading.
One key reason is that the Board’s figures represent a clear and very accurate record of how much activity there is in the rental market across NSW. Anyone renting a residential property is required to pay a bond that has to be lodged with the Board and so the figures are universal. Only a small number of tenancies, possibly between family members might not be included in the figures, that’s what makes the figures interesting.
Another factor is that the various statistics published go back over many years. This week I took a look at the total number of bonds that have been held between 2008/09 and 2014/15. That’s 7 years activity which is often quoted as the length of a ‘typical’ property cycle, if such a thing exists anymore, I’m not sure, but of this exercise 7 years gives us a pretty good window into the rental market, and what sort of demand there was for rental accommodation.
I also took some general vacancy rates in Sydney over the same period, to see if there was any direct association. The figures are of particular interest to me because of the persistent suggestion that we might be heading for an over supply of apartments, and that could make the market less attractive to investors. It could also create a wait and see attitude among owner-occupiers based upon the prospect that prices might fall.
The Boards figures show a general level of annual bonds transactions, the number of bonds held, ranged between 643,518 in 2008/09 and 754,423 in 2014/15 being the most recent figures.
The figures do show a big increase in the number of bonds held and in 2014/15 there were 295,052 new bonds held an increase of 3.6% over the previous 12 months. Of the 754,423 bonds held this would indicate that 295,052 tenancies were either re-leased or new properties came onto the market however the change-over rate of almost 39% does show a very active rental market.
This activity could be driven by a number of factors including more people renting because of higher house prices, but also a more direct result of more choice in the rental market including a greater supply of new properties to lease.
Vacancy Rates Remain Low
The Rental Bond Board’s figures do show a big increase in the number of properties leased, it is generally accepted that about 30% of the total housing stock in NSW is leased.
However, while we have seen a constant increase in supply, as evidenced by the clear number of bonds being lodged, and sitting at 20,000 plus per annum over the last 3 years, vacancy rates remain low. This may be a surprise, but I think it accurately reflects a trend more towards apartment living as well as accommodating population growth.
Published vacancy rates do vary, but if we take a sample, they reinforce the stability of the market, and the continued demand for rental accommodation, which is key for investors. The rental market is generally considered to be in equilibrium with a vacancy rates of between 2.5% and 3.00%.
In 2009/10 when the rate of increase in the number of bonds was at its lowest point Sydney vacancy rates were also very low in a range of 1.1% to 1.4% and the small increase in bonds that year, only 4623 would reinforce that fact.
In 2011/12 – the first time that numbers started to jump vacancy rates were still at an average of 1.4% and 2013/14 despite the jump in numbers vacancy rates had only increased to 1.9%, still well below the 2.5%/3.00% range.
Mid-way through 2016 vacancy rates for metro Sydney still remain below 2% in a range of between 1.5% and 1.9%, while some very popular inner-city suburbs, despite increased supply of new apartments, sit closer to 1%.
Here again I think this clearly shows that that popular areas with good facilities and easy access to transport and Sydney CBD will attract a demographic keen to live in these areas and new supply makes these areas more accessible.
The number of bonds (and the number of properties) has been steadily increasing for the past 3 years, this figure will have been partly a result of new apartment projects, but there is continued demand and vacancy rates remain low. Changing demographics and lifestyle demand are clearly attractive incentives for residents looking to buy and rent in many areas fuelling demand.