Suburb Trends May 2021 | Rental Vacancies

Rental vacancies in a bullish market, the great outlook for the future of investors? 
Inklings of the property market slowing down, our hosts analyse rental vacancies to rationalise current trends within the market and what the outlook will be for first home buyers, upgraders and investors?
How human behaviour is skewing the data, will the combination of anchoring bias, FOMO and loss aversion put consumers in risky situations as they leave the market with pipe dreams of prices falling?

RELEVANT EPISODES:
Episode 175 | Moving regionally: Will it last and will it be sustainable? | Kirsten Craze
Episode 173 | Buying in Byron Bay: Overhyped or shrewd investment? | Michael Murray
Episode 168 | Listener Q&A: How to buy your first investment property

KENT LARDNER LINKS:
www.suburbtrends.com

HOST LINKS:
Looking for a Sydney Buyers Agent? www.gooddeeds.com.au
Work with Veronica: https://linktr.ee/veronicamorgan

Looking for a Mortgage Broker? www.wealthful.com.au
Work with Chris: hello@wealthful.com.au

Send in your questions to: questions@theelephantintheroom.com.au

EPISODE TRANSCRIPT:
Please note that this has been transcribed by half-human-half-robot, so brace yourself for typos and the odd bit of weirdness…
This episode was recorded in May 2021.

Veronica Morgan: This is our suburb trends report for May, 2021. We'll be looking at where prices are moving across the country, either up or down, not many down and why they're moving in this episode, we'll be discussing rental vacancy rates and looking at whether these are having an impact on listings.

Veronica Morgan: Welcome to the elephant in the room. This is the podcast where we love to talk about the big things in property that never usually get talked about. I'm Veronica Morgan, real estate agent buyer's agent co-host of Foxtel's location, location, location, Australia, and author of auction ready. And I'm Chris Bates mortgage broker. And I'm the data game. Kent London,

Chris Bates: Before we get started, I need to let you know that nothing we say on air can be taken as personal advice. We always recommend you engage the services of a professional. Don't forget that you can access the transcript for this episode on the website, as well as download our free full forecast report, which experts can you trust to get it right? The elephant in the room.com. Did I hear you?

Veronica Morgan: If I can see rates across the capital cities are trending lower and whilst significant numbers of Melbourne and Sydney apartments are still vacant. The story everywhere is very positive for investors, but it begs the question are investors exiting the city unit markets of Sydney and Melbourne or holding firm. Now can't what is the data telling us about this one?

Kent Lardner: Well, I wanted the story to be a really exciting one of doom and gloom and lots of people exiting, but it's just certainly not the case. I've analyzed one weeks of data, one full week of data. And it came up with around 15% as the volume of properties that were, or the proportion of properties, the way rentals. That's not very high. I've seen it higher in past analysis. So at this stage, I think the stories are pretty good for investors with the exception of a couple of CBD pockets.

Veronica Morgan: Talk about the CBD pockets in a minute, but I'm curious when you say in past analysis, you've seen it higher. Can you give us some examples? I'm guessing mining towns, but are there others?

Kent Lardner: This is at an aggregate level. So if I tally up all total listings, now you certainly will see some suburbs or some regions where it can get up well above 30%. But overall, the last couple of times I've done this, I did this for the AFR a few weeks ago, trying to cover a headline story. And it really has struggled. I have to say I struggled, but it was a little bit higher than I think it was about 18%. The last time I did it. But this time around using data from last week, it was only 15%. So it's not very good.

Chris Bates: Isn't the roughly sort of number of lists properties owned. So roughly around 30% are owned by investors. So if there's only 15% of X investors, then it's dramatically under their market share, I guess.

Kent Lardner: Yes. It's a really thing. I I had a look at obviously the, the change in the proportion of, of rental properties between 2011 and 2016 using the census. And it was only around give or take about 1%, but it will be nudging higher. There is no doubt that the proportion or the percentage of rental tenure will be higher next census. How, how big we don't know. However, I think there was a bit of a penalty against a lot of investors or investor lending a few years back that certainly raring its ugly head now and having an impact. And I can see that in the data with the rental crisis across most of the regions, but I think we'll probably still be in the low thirties, Chris, next census.

Chris Bates: It's an interesting one though. If you say that 85% of the properties listed ex people living in the property. So owner occupies, generally owner occupies it back in the market cause they're, you know, wanting to buy something else to live in. And so it shows that even if we get, have more listings that 85% of those people are back in the market. So that yes, supply goes up by one, but demand also goes up by one. Whereas investors, you know, if you sell your investment property doesn't necessarily mean you're going to go and buy another investment

Kent Lardner: Property. That's right. Yeah. It's really

Chris Bates: Shows that we've got, even if we get higher listings coming on, that doesn't mean we're going to see a massive drop in demand at an aggregate level because 85% of them based on your data are still going to be out there buying most likely

Kent Lardner: It is. But at what they started doesn't account for is how many of those rentals might've been rent boosters that exited the city and finally took up residence in that rental property. I did the same thing. So there's a few things that can happen to that. You know, the lifecycle of a rental property. Yeah,

Chris Bates: Yeah. Those people where there's 15%, we've got clients who are selling investment properties in order to help them upgrade their home. And so that listing there, we see a listing of an investment property coming on to that would be, you'd think that that's not more demand, but actually it is because by selling that investment property and now allows them to spend more money in the occupied,

Veronica Morgan: Although they'd be selling two to buy one, would that be fair?

Chris Bates: Yes. So they would, in that situation, just thinking one who sold his investment property to then also sell his home then also to upgrade. So you're right. So it's, but it's still more demand going into owner owner-occupiers by the cash, the profits of the investment property going into sort of allowing him to go and spend more money on a home.

Veronica Morgan: It's such an interesting, it's a very complex issue because it taps into affordability or unaffordability, doesn't it? And this is not really the remit of this particular episode of the podcast, but something that's obviously being a big topic at the moment of discussion is around affordability property, given price rises. And usually that sort of pointed at first home buyers. But I was watching Alan Kohler on Q and a, the other night saying, well, property is affordable because, because money is so cheap. That's the problem. The affordability is, is, is purely what's pushing the prices up, which is a different way of looking at it, but equally true. And then you've got the issue of affordability of rental property. And when you've got investor stock, that's in the wrong locations for where people want to rent, you know, it's, there's other areas there's stock available where there's no demand and there's no, there's no stock available where there's lots of demand for rentals. Correct?

Kent Lardner: Yeah. Well COVID has certainly changed the market dynamics and pushed a lot of demand outside of the CBDs. Obviously coupled with the, the exit is of students. But, you know, we can just see that I'll, I'll blanket it and call it the housing market because really this crisis or lack of supply applies to anything that's a freestanding house or a house and that's across the board and it's hitting a lot of the regions, very hard with extraordinarily low vacancy rates right now. And pretty much the whole of WWI.

Veronica Morgan: Yeah. But, but the problem would come back to Sydney and Melbourne for a minute, is that so you've got oversupply and Brisbane for that matter. You've got oversupply of units that has been the case for many, many years, regardless of the fact you had overseas students, et cetera, et cetera. And now you've got Sydney sort of hitting very much in that same direction. And then you had COVID. I mean, you'd been doing some research on some loss, the stories of losses. So there's been very set, some very sad stories of losses coming in a Melbourne unit market for some time now.

Kent Lardner: Yeah, absolutely. I'm still seeing some pain ahead of, of specifically Melbourne city is the the essay three region that I'm looking at. And whilst sales volumes are probably the bigger driver at the moment making the inventory levels stay high. So there are fewer listings than there were a year ago in Melbourne city around 1300 less at the moment, but there's close to 20% fewer sales on average. So as a result, inventory levels are still quite high. And that's my favorite metric in terms of, you know, which direction prices are going. So a lot of these problematic markets in terms of inventory levels and increases in inventory are centered around Melbourne.

Veronica Morgan: It's interesting though, isn't it? That the actual number of listings is lower than a year ago? You're saying yes, but obviously demand has dropped even further. Correct. You know, it could be worse, you know, I guess there are a lot of the doom and gloomers doom and gloom is, is that even a term, the property bear bull bear confusing, the property bears were basically saying, there's going to be an avalanche of listings. Everyone's going to be Bilingue, et cetera, et cetera. But what you're saying is that actually that's not the case at all. There's less listings, there's fewer buyers, but less listings. And I think that's, I guess, somewhat heartening, but obviously there's still poised for loss in many of them.

Kent Lardner: Yeah. Well, I didn't expect that. I didn't, I only did that listing change 12 month analysis this morning and I expected it to be the other way around equally, as I expected to see a lot higher X rental volumes and that, and it simply wasn't the case. So I think by and large, what would to sum up the situation we've got pockets of, of high density units that are certainly are markets that are weak, but by and large, the rental market is repairing rapidly. Even in many of these higher density areas. It's phenomenal. So one of the things that's standing out for me is the question we asked a few months back was, well, vacancy rates are quite high in and around Melbourne as an example, but prices weren't adjusting well. We're seeing that price adjustment. Now you mean the rental pricing, correct? Yeah. So we're saying, you know, rents are, I'll pick on some of those, those city rents they're coming down, they're adjusting. And as a result, we are seeing a shift in the in the vacancy rates. So they are starting to adjust and repair.

Veronica Morgan: Hmm. It's interesting. Isn't it? That it hasn't actually played out as terribly as, I guess it would have been expected. And I do love the fact you had a hypothesis and you being proven wrong. I always find it fascinating when I do some research too, is to you start off thinking I'm so certain something's going to be certain way and it may or may not turn out that way. So this is pretty interesting stuff. What about inventory levels in other cities?

Kent Lardner: Yeah. So if I I'll just zoom across just talking at the city level for houses, inventory levels across most of the areas like I'm looking through, most of them are very, very low. The only one that's standing out at the moment is greater South Australia. That's kind of clustered as you know, the regional AC and that standing out that's a little bit higher. And just looking at the list here as we go, and that's 3.38 I've I've just grabbed the wrong one. So I'm looking down the list. There's only, there's one in here. That's 6.7, eight months of inventory. And that's, that is that's the rest of essay. So there you go. So it's really low at the city level is extraordinarily low,

Chris Bates: I guess when you've got very low listings, it doesn't all of a sudden, overnight become a lot of listings as long as if you've got a lot of demand. And so even if more of those things do come on, as long as there's more demand than there are sort of new listings, this problem could go on for some time. And I think you've seen Veronica that you've seen a, probably a supply shortage, maybe have good properties probably for four or five years, I imagine. And you're thinking, Oh, you know, more stuff will come. More stuff will come. But who's to say that, you know, we look at 2022 that we still don't have this problem of still very low listings because whenever the good stuff comes on and he just gets easily stepped up by demand.

Kent Lardner: Well, that's, it's interesting. ICT has been the one I've been calling up for some time. So it's got the lowest inventory levels out, down at around 1.2, four year prices have jumped up the average asking price for a house in the act in the last 12 months has jumped by close to $80,000. Yet the demand is not abating one bit. So it's it's amazing what what's happening in act, as I've said, I believe that it could be the highest priced capital city within a year.

Chris Bates: Yeah. I was listening to my agency you know, they do their market updates. And I was saying, looking at process of bankruptcy, extraordinary growth that we are saying sellers that are getting more confident to, to list their property and, you know, take advantage of the current hot market. But you have to ask, where are these sort of vendors going to go? You know, that's always the challenge, isn't it. If you could sell your house for a certain price and take your profits, w what are you going to do with that? And when you look at regional areas, which may be a downsize as we would have looked at before, or, you know bigger, older apartments, these markets are still just as hot as their house. And so a lot of people will go well, you know, there's not actually a viable option for me to sell because I have nowhere else to put the money. And so the best option for me is just to hold on and keep living here, because is that what you're sort of saying, Veronica, when you're sort of talking to agents and things like that.

Veronica Morgan: Yeah, definitely that fear of, well, what am I going to buy? So why would I sell, why would I get out of this market? Absolutely. That's, that's causing people to hold off from this in their properties. And rightly so, it is quite interesting because of course, when I'm eating good deeds, my business, obviously we, we deal in a finite area. It's, you know, that 10 K radius of the CBD. So we're doing, you know, low on shore Eastern suburbs in a Western. So it's, it's a fairly small world and, and so much so that, you know, when a property sells, then you know that the next listing, you know, which property they bought it's, it's that all right. They bought that, you know, there's, there's that quite openness around about the domino effect of once something sells, you know, and, and even at, at auctions, you're, you know, everyone's thinking, okay, well, what have they got to sell?

Veronica Morgan: And then it's starting to be audible, but buyers are saying it it's quite hilarious. And, and, but it is the way, you know, and, but we did see quite remarkably in 2016, we saw listings really start to fall insignificant numbers. And it was about a third in suburb after suburb. We could see year on year from the previous year to 2016, there was about a third drop in listings numbers. And that has stayed relatively stable until this year when we're seeing it drop even further. So, you know, you were saying before about people waiting for the stock to come back on the market. I think you just got a, this appears to be for whatever reason, I don't have an answer, but this transcends, you know, market boom market market sort of slowdown. So booms and troughs and peaks and troughs, it transcends COVID, it transcends lockdown, a trend transcends, you know, everything going crazy again, you know, if a rates in the fifties where clearance rates in the eighties, and yet there's still consistently low listings in the, in the areas in which I'm operating anyway. So I don't know what the answer is. I think we just have to get used to the fact that this is that this is the reality.

Chris Bates: Yeah. And I guess combined with low listings, you may get surprised that more demand actually comes, you know, investors good enter the market, which is already sort of happening in the media, sort of reporting out. We, so a bit of a change late last year that, you know, some clients that even more conservative clients were coming to us and saying, Oh, I think maybe I should buy an investment property because it's seeing the market grow so strongly late last year, but it hasn't been like an avalanche. You know, all the media sort of talked it up last week and said, there's so many investors out there it's growing 12% in a month, biggest growth ever, but that was off such a low base. But if we, if we start to see investors sort of come back, which isn't happening yet, that's really going to compete with a lot of first-time buyers. And, you know, if, if you start going to auctions and you you've waited for more listings, let's say, and then you start saying, actually, you know what, there's more competition here. There's other people upgrading there's investors. There's downsizers. And so that's a bit of a fear I can see playing out at the moment is people are saying it's so hard to buy. There's very low listings. I'll just wait. But I think waiting six months may even just be as frustrating because you'll have more demand coming on. Even if there's less, more listings.

Veronica Morgan: It's funny. I was talking to Megan about this on other podcasts, your first home buyer guide. And it's really about this idea of getting into the market when the timing getting into the market. And, you know, I was, I was really reflecting on this the other day because there's people that are thinking, Oh, it's too hard, hardest way to wait until this more soccer, weight, or weight or weight or weight for whatever. And the thing is, if you choose to wait and you can buy, now, you are betting that prices will fall. And that is yes. One day process will fall because markets go in cycles, but they don't fall to where they don't always fall to where they are at a given point. You know? So they may fall. But if the peak is tomorrow, yeah, you're probably better off you wait, but nobody knows when their peak is going to be.

Veronica Morgan: And if the peak is in the year's time, you're probably better off not waiting. And the fact is you run an extraordinary risk of not buying at all. Ever if you decide to sit on your hands when you're not in the market, and if you buy and then you buy, well, you buy a good asset and you focus on the fundamentals and not FOMO and all that sort of stuff, then you will be in the market. And even if prices come off at some point, you've got a good asset, just sit tight, enjoy living in it because you're in it for the long-term and you'll be fine. And, you know, but I, that is the caveat, a good asset. And, but, but waiting, if you are ready is really folly and that doesn't matter what the market's doing. It is folly because the risks of you actually missing up forever are higher. Then, you know, then the, the probability the price is coming off the ball.

Kent Lardner: I think we saw that in the blue chip suburbs, the Eastern suburbs North is always the one I'd like to go to. And I think we spoke about it. A good might've been six months ago or so we counted up how many vacant properties so they were, and we spoke about how many of the the, the owners fully own their property in the Eastern suburbs North. So look, I, I think for me, I look at those suburbs or those markets they're, blue-chip ones zone. When things get tough, they flatten out, they just go flat for awhile. So th those markets traditionally haven't come backwards. You never say never, but at the, you know, the history, the evidence says that those blue-chip markets, even when things get tough, just go flat and talking about the Eastern suburbs what's happened. There is, you know, it had close to 900 vacant properties around 6% a year ago. And since then prices have adjusted for the two bedroom unit. The typical two bedroom units dropped by about 50 bucks. There was no fire sale. There was no, no concern average asking process for units of 30, 30, $1,000 higher than they were a year ago. So, and inventory levels and, and are extraordinary low down around 1.8 months, and vacancy rates are adjusting down to normal. So things got back to normal pretty quickly in the Eastern suburbs.

Veronica Morgan: So, okay. So, you know, there's in those areas where there are still high vacancy rates such as in a Sydney and in a Melbourne in particular, and Victoria is particularly exposed to the overseas student market too, isn't it? Yeah. Rents have been adjusted in order to keep those properties rent, or to reduce the rate rates to some degree there's been not a huge influx of ex rental property on the market. Are there any areas where we are seeing more rental stock? Have you, have you come across that an increase in rental stock?

Kent Lardner: No. No. So across the board, I just haven't seen anything that's worth writing about the one that probably did stand out with the analysis. And it was a one, one week of, of sample Townsville had a fairly high proportion of ex rentals relative, but it was still a low count, but relative to everywhere else. So Townsville Perth Northwest had a flurry and the gold coast, but again, these numbers are so low. It's hardly worth calling out. What I would call out was what was interesting to the study I did about a month ago. And the only conclusion I could come up with was that a few people had cashed in. So Chris, you mentioned earlier on your head, some of your clients that were selling up their investment property to Dolly up their owner, occupied property. The study I did a few about a month ago, found that a couple of suburbs like Leichhardt stood out or the region of Leichhardt stood out and that had no Leichhardt in Sydney, in a West Wollongong, we're ringer, Pittwater, and a lot of and manly. So these were areas that had a fairly high proportion. One of them had, I'm just looking at it now, I'm just going to put them my goggles on like I'd had 34% X rentals from the sample. It was a one month sample. And, and while ringer had 30%, and the only thing I could put it down to was that these people were cashing in on good times.

Chris Bates: I guess it's interesting with investors. And this is sort of what we're trying to talk about here is that, is these investors going to sort of try to cash in and list their properties with the market being a bit better in the data side and say, no, not yet. Anchoring bias is so powerful. Whether you buy a thousand dollars a shares or you buy a million dollar investment property, no one wants to lose money and mentally we will do everything we can to not go through that pain. And so we'll hold onto shares for, for years and years and years, trying to hope that we'll go back to what we paid one day, so we can get out, not just cut the cord and the same weed properties. You know, like if you bought an apartment, let's say Brisbane, and you paid four 50 and it's now worth 400, or you bought a house land package in the outskirts of Perth.

Chris Bates: And it's, it's, it takes a, you know, it takes a lot of guts to sort of take that pain on and to sell your property. So the problem is when, when prices do recover or they do go too close to what someone paid, and there's a lot of people paying a similar price, like apartments in Melbourne, all around that sort of four or 500 Mark, you were starting to see a lot more listings and that, that will keep prices at Bay. And so you're not going to get these huge, you know, jumping prices beyond what you paid. So, you know, you best has this sort of walking away with your money back because as soon as it gets that price, there's a lot of other people thinking like you that have held these properties for a long time and say, I'm going to sell it when I get my money back. And so is that sort of what you were saying, cannabis?

Kent Lardner: And I think that drives the flat market analogy that, you know, people just have that emotional hook to say, I don't want to look like an idiot. So along as long as I sell it, sell it for what I bought it for. Even if the opportunity cost is huge. Yeah.

Veronica Morgan: It is funny how people like that though. They just like, you know, I got, I got back what I paid for it and said, it's like it, that it's okay. Then it's like, no, it's not okay. Entry and exit costs, but you know, it's, maybe I'm a bit cruel, but I want to, I want them to face it so that they don't do it again, you know, own it, own it, you know, feel the pain. And then you think you won't do it. It's such a stupid thing again, right

Kent Lardner: Through the loss barrier.

Chris Bates: The problem with it is the opportunity cost obviously, but it's sometimes, you know, we had a client last week who think about buying an investment property. You know, I've got a house, lots of equity happy with the house, got heaps of borrowing capacity, super conservative, but realize they, they could go and buy an investment property. And, you know, part of her story was that, you know, they bought a place in Adelaide and they bought an investment property there and it did nothing. And we had it for years and years and they lost money on it. And they have, I haven't had the guts to go and buy another investment property. And so if you sort of rewind it, you know, the opportunity cost is yeah, on that property, they could have done this versus another property, but also it's the time that they've potentially not bought this investment property and they're super nervous going in and buying something now, like it's, it's sort of that emotional opportunity cost as well of that sort of poor decision. And they understand now just through educating themselves that, you know, that wasn't so much an investment property was the problem. It was, it was the wrong property and that, yeah, it's that emotional sort of impact as well, which is hard to quantify.

Veronica Morgan: It is interesting though, that you say, okay, opportunity cost is we always think about that. What else could you have done with that money over that period of time? Whereas what you're saying is opportunity costs extends beyond that because they re they refrain from making other investments in or better investments that they could exactly because of that poor experience. And so therefore, you know, there's, there's, they're further and further behind and, and is, it is true. I meet people at that too. There's that, that fear around that. And I think fundamentally because they didn't understand what they were doing in the first place, I sort of followed, you know, the impossible dream thing that everybody's you know, it's that easy to buy an investment, or you need to get into the market, you know, like this is going to be the next hotspot, you know, all those sorts of beliefs around how you make an investment decision and to be discovered only after you've done it, that it was all bull. And then, then they have to go, well, well, if, if those decisions were wrong, if that information was wrong, if those assumptions were wrong, well, how do I find, how do I make the right assumptions? How do I actually get the right information? And unfortunately, the voices that are selling those impossible dreams of Astley louder than those like us that say, please don't do that.

Kent Lardner: It's true. I say, I was actually saying it yesterday, the spruikers are winning in many ways, or the loud mouths are the ones that are getting the attention.

Veronica Morgan: You got the marketing budgets. That's why

Kent Lardner: There shout shouting louder than the, the nerd sitting at home with a spreadsheet.

Veronica Morgan: Well, because the nerd Sydney at home with a spreadsheet, isn't making money out of giving good information, whereas the spruikers are making a load of money out of selling dreams.

Chris Bates: And I think the problem at the moment is you know, through your data, you're showing Ken is the low listings. You know, prices are rising pretty much across the whole country, even for the poor stuff. And so a lot of people who have gone down this sort of quantity strategy and they're picking site, regional markets are having those sort of time in the sun, you know, opposite to that story. I spoke about there, where that person bought an investment property, and then didn't buy another one, which is what a lot of abs that shows that, you know, most people only have one property, 70, 80%, the other

Kent Lardner: Sort of person I'm saying also go hell for leather, the investor that's buying the quantity because they're going the short term is I bought that for two 50 and now it's worth 300 and that's made a 20% growth. Then I should then go and buy another one. And it really that short term bias plays into the opposite mindset, which is overconfidence and someone just dying and accumulating multiple properties. And let's buy four in the next three months or whatever it is in the same area. So I think that's the, I mean, there's a couple of interesting things. A lot of the biggest rises in prices other things making headlines and some of these areas are interesting. So I've got a couple of lists here. I've looked at two bedroom units and I've done this one in dollars. Make it a bit interesting, but the region is all gusta, Margaret river Busselton sit down in that Bunbury area.

Kent Lardner: So two bedroom unit down in that area. There's not a lot of them, but you know, there's only very few listings, but that's gone up by $60. So that's, but that's at that regional level. So it's a half decent sample rental rental act. So within that act, there's an essay three called called Woden Valley. That's gone up for $45 Perth Southwest in that just Perth appears and reappears constantly. They've gone up by $40 as has Noosa as has Newcastle. So there's a quite a big list here, but probably the common thing is these aren't appearing in the blue chip location. So that's a really interesting call out here that the Bluetooth locations that do have that capital growth do have that consistency, et cetera, all the stuff that you talk about commonly Veronica and Chris, they're not the ones going to be making the headlines in the next three months.

Veronica Morgan: Danger will Smith danger. You're saying basically that the headlines will be going, you know, rental increases in this area as yield increases in these areas way places to invest because you too can get reached tronics for 50 bucks a week.

Kent Lardner: Yeah. Yeah. And, and the same again, I mean, I'm not saying all of these, cause I've got like Nueces in there, but this has had a bit of volatility over the years Newcastle's in there now. I'm never going to say anything negative about nuclear ever, but on the housing front, it's a similar story. You know, we've got, you know, 20% price rises in the far North of Queensland and then lower Murray. So these are, yeah, these are off a low base for a reason that, you know, and you need to expand your search and look at other factors. It's not just about the headline growth rate and rental yields. What's the employment opportunity. What's the diversity in the economy, et cetera. So there's a lot more to it than one or two headline metrics.

Veronica Morgan: Hm, interesting. So that's where you talking about where Brent's arising the most across the country. That's basically what you're talking about there, and you're sort of highlighting this a bit of a danger zone.

Kent Lardner: You never want to look at this data in isolation. You wouldn't want to look at a single variable such as rental increase, you know, all, all yield. You always want to look at it holistically. Like the value is, do like the sensible buyer's agents. Do.

Chris Bates: I guess it's really dangerous looking at rental increases because big rental rises can happen because there's a hugely, a huge influx of demand, like thinking about new sites, a lot of people who, for example, a moving to the sunny coast and, you know, they're desperate to rent because they haven't got anywhere else to live. And so they're going to push up sort of rental prices. It's whether the rental price rises as the sustainable longer term, you know, and as more, more listings sort of come to the market, whether it was just a short increase in demand. So you really want to look at longer term rental rises and rental rises have to coincide with capital growth. It's a sort of a big myth out there where you can get rents going up without capital growth and actually goes the other way round as prices get more expensive, more people that can't afford to buy, which means more people are forced to rent. So that sort of what drives sort of price rents to go up over time

Veronica Morgan: Is there. And this is where it gets a bit misleading though. When you've got a high capital growth area, there's an LSD city, obviously in the buying population in terms of what they can spend to buy a property there, but you don't have the same LSD city with rentals because that's tied to incomes. So, you know, so you're not leveraging your income in the say when you're renting in the same way you are, when you're buying. Yes,

Chris Bates: Exactly. So, you know, if you could go six times your income when you're buying, whereas there's also affordability, you know, people are willing to stretch for houses if they're going to leave their long-term and stretch beyond their means. But with renting, they're like, well, I don't really need to be spending, you know, $1,500 a week rent. I want to kind of save for a house or we can just rent an apartment. Like people are more conservative with somewhere they rent rather than something they're looking to buy. So you're right. But ultimately the more, if you think about a longer term trend, the more that prices rise, the more people can afford to buy in those areas. And the more people can't afford to buy just generally. And so then that's what pushes up the rent you know, in suburbs. Okay.

Veronica Morgan: Well, what I'm saying there though, is that rents don't rise at the same rate, right? That prices rise. So the yield actually gets worse and worse in good areas,

Chris Bates: Percentage does. But the actual, if you, you base your yield based on current purchase price, when you purchase a property, rather than what it's worth in the future,

Veronica Morgan: Do that there's people do that, but that's silly. You got to base it on, on, you know, the value at whatever time you you're calculating it.

Chris Bates: So like, yeah, but that's, that's, if you're looking at your overall sort of yield on your portfolio, but as an investment, you know, if you bought a million dollar property 10 years ago, and that property has gone to $2 million, you're actually investments a million dollars. And so

Veronica Morgan: That's your yield, not market yield. Yeah, exactly. So,

Chris Bates: You know, when you're basing an investment decision, you should be basing on what the future yield could be through rental rises rather than what the current yield today. So if I had two properties, one was the 3% year today, and one was a 5% yield today. And I was saying, which one was a better investment? What I really care is how much our rent is going to rise over the longer term, you know, because that yield could easily go from 3% to 6% based on the current purchase price. And I forget capital growth as well. So, you know, I think this it's just a, it's a point and raising you'll get rental risers is because the more people can't afford to buy, which means that those higher income people will be forced to rent and renting a house today is not the same price. As it was say 10 years ago, it's been a rental increase, but parts of the Sydney market rents are probably similar to what they were 10 years ago.

Kent Lardner: Well, I can see it what's happening is the Exodus is driving. A lot of it of people actually renting first, then looking to buy. So they're pushing up the rent because they've got the money to spend. And then, you know, they use cases very different to the local who is a long-term renter. These are a short-term rental looking for a property to buy. So you can see that the rather large spikes in rents or the large reduction in vacancy rates and they ask spread out, you know, without coincidence spread out in a lot of these regional areas,

Veronica Morgan: I had a couple of episodes interviewed a buyer's agent, Byron Bay, or interview cursing craze, property journalists about that sort of that sea change tree change impact and how that's affecting locals. It's a little unfortunate actually that those it's a bit haves and haves nots, you know, is the exit from exit as from the cities is, is putting my pushing money into rural areas that didn't have that same level of capital coming into it before. So it's, it's an, it's a many tentacled problem. This one isn't, it is huge. And the people that are missing out on rental properties in a regional area, they're not going to turn around and come into the city and take out one of those units.

Kent Lardner: Are they

Veronica Morgan: A D okay, so what's, how do we sum this up? So, you know, you started off with the hypothesis saying, right, or basically in certain areas, Reiki, vacancy rates have been rising, quite dramatically. Rents have been falling. We would have expected to see quite a lot of that stock hit the market as a sales listing. And what you've found is you haven't that that's not what we found at all. And in fact I guess what, what, what do we draw from all this

Kent Lardner: They're holding? And my conclusion is most of these investors are holding vacancy rates are adjusting. If I look at, you know, Melbourne let's pick our Melbourne city, which is our go-to, you know, a two bedroom unit down there it's dropped away $120, a massive drop yet they're wearing that they're. And I expected to see a significant proportion of X rentals in, in Melbourne city. I didn't, and what we saw is vacancy rates tipped below 20% or below 18% or 17.9, three, it's odd, but it's, but it's fallen by 4.2% in the last three months and it is falling. So, so I think a lot of the lot of them are, are seeing the light at the end of the tunnel.

Chris Bates: Well, yeah, I mean, there's so much positive talk out there, right? All the banks, you know, the market out there. So if you're an investor and you don't have to sell, which a lot of investors don't interest only is much easier to get. So even if they are finishing their interest only term, they can just extend it for another five years. And then with the interest rates they can fix, you know, at two and a half percent, for three years interest only. And so as long as they've got a tenant, then the cashflow is pretty much going to be neutral or even potentially positive. And then there's no, and there's also talk the market going up. So why would you sort of sell your sort of investment generally now, unless you had to? Yeah, because there's no cashflow pressure, especially if it hasn't performed very well, they're more likely to probably hold it as well because it's, you know, the anchoring bias which we spoke about. So it kind of makes sense now that we talk it through, but I was like, you can, I thought, you know, maybe we're going to start saying the numbers showing investors are cashing in, but it doesn't look like that. Which means, hence why we're getting low listings and not even investors are selling.

Veronica Morgan: It also means that they don't have the financial pressure. Those that are under pressure are listing. Cause obviously some are listing, but you're not. I mean, obviously they're, they're weathering it and low interest rates, interest only whatever it is, no rents, you know, they're obviously weathering it. So, you know, the whole picture of the recession, et cetera, et cetera. And there hasn't been playing out as, as you know, you would logically expect,

Kent Lardner: Oh, a lot of us call it the cliff I did. I expected a cliff, no cliff at all. It's just this gentle, gentle Lille

Chris Bates: Well, I guess it's like, it's a, like a knife edge, isn't it? So if you are selling a property in the investor's mind, if they think that the price of that property is going to be less next year, they're more likely to sell. And if more likely to sell, then you get to get more listings. If you get more listings and prices are more likely to fall because you got more supply and then you're gonna get more faster. So it's like, it's just what happened in 2018. When the market started to fall, you then started to create this negative feedback loop. And I think for investors, it's, hasn't gone down that direction, you know, because of lots of reasons by rates, the payment holidays, et cetera. And so they've got through that sort of potential for a negative loop. And now it's going into a positive loop, low listings, low rates prices are rising. So I think that's also had a big part to play in it that we, it kind of, the story didn't get bad because of lots of intervention. Really?

Veronica Morgan: No, one's got anything to say to that.

Kent Lardner: Very good.

Veronica Morgan: That's hilarious. All right. Well, I think that that some slightly shorter than normal episode, but we don't need to just to fill up air space.

Chris Bates: So that's been very interesting analysis Kent and you know, the property market seems to be a lot more robust than, than is expected. Not to say that these are good investments, just because people are holding onto them and not selling them. It doesn't mean that they're good investments, but it does, I guess, mean that they're not going to be realizing their losses in the short term. Yes. Things are improving even in those weaker markets and that's right. If you're not getting investors selling, then you might also get more investors coming to the market. So you just gotta be conscious that this is definitely starting to happen. So if you are looking to buy or upgrade, et cetera, you don't want to be sort of in six months time competing with investors, which may be coming into the markets with them.