If property prices are going down, why are rents going up?

National property values dropped 2 percent in the three months to July, on CoreLogic figures, and are expected to fall further, the rental market is heading in the opposite direction. 

Rents and property prices are diverging because property prices are largely driven by interest rates and the ease of securing a home loan, while the cost of renting depends on the availability of rentals compared to demand, experts say. 

So while the combination of rising interest rates and caps on borrowing capacity have reduced homebuyer budgets, the rental vacancy rate has plummeted to record lows around the country, leaving renters with few options to choose from and landlords holding the upper hand in charging higher rents. 

Impact Economics and Policy economist Dr. Angela Jackson said while landlords may use the excuse of higher mortgage rates as the reason for rising rents, the availability of rentals was the ultimate driver.”

Higher interest rates might be used as an excuse, but that’s not the reason driving higher rents. The reality is the market has tightened significantly, and they can increase their rents, so they do,” Jackson said. “You would think there would be this relationship between house prices and rents but that just does not hold it’s about the supply of rental housing”. 

The Australia Institute senior economist Matt Grudnoff said the main reason property prices in the sales market skyrocketed for two years after the pandemic hit was because the cost of borrowing money was at record lows and was now back on the rise. It was because money cost less,” Grudnoff said.”The cost of housing is the combination of the price and the interest rates. 

Meanwhile, asking rents shoot up when there is a shortage of availability like now, he said, putting landlords in the box seat and allowing them to increase their prices. He said asking rents were ultimately set by supply and demand. “At the end of the day is there enough properties to meet the demand of people who need to rent? [The sales and rental markets] are set by very different factors, and they can move in different directions”. He said that the largest cost to landlords was the interest component of their mortgage repayments.

Source: Sydney Morning Herald 

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