The rules of the rental market

May 10, 2024 BY

Gareth Kent, Director at Preston Rowe Paterson takes a look inside the rental market.


This week I have been doing some research around what’s happening with the rental market in Geelong and surrounding areas.

There are some interesting trends. Firstly, many investors and homeowners who would normally provide their property for rental are finding the new hurdles to owning a residential rental to be too high. These hurdles, 130 new regulations in total introduced in 2021 reforms, include: changes to how rent is paid, and how much can be asked to be paid in advance, limits to how much rent can be raised annually, bans on rental bidding, changes to the standards of accommodation and requirements for repairs and damage. A landlord must pay for regular inspections by the managing agents and other services to ensure the house is up to spec and all these inspections cost more money.

On the surface, the rules are designed to assist renters, but the reality is that the cost of being compliant in a lot of cases outweighs the benefits of providing the accommodation and forces up rent.

To make matters worse, and as a cascading effect, recent increases in property taxes have pushed many positive-geared properties into becoming negative-geared, and unless you have a substantial income to cover the difference, a negative-geared property is not ideal. So naturally property owners are putting the rent up to cover the shortfall – this hurts the lower-income renters the hardest.

However, for renters, the substantial increases in the cost of living, due to our high inflation environment, means that renters can no longer afford to pay as much rent as they once possibly could. Rental agents, like bankers, use affordability calculators when considering rental applications. These calculations consider the cost of living, a person’s income and what they can afford based on their income, to assess the likelihood of an applicant being able to afford the home they are applying for. As a rule of thumb, property managers adopt a 30 per cent rule, where they consider the total net income of the household and then take out 30 per cent for rent.

The 2021 Census data identifies that the median weekly income for households in Geelong is $91,468, indicating that the average family can afford a rental of only $526 per week. Yet the average price being asked for rent in say, Armstrong Creek, which as of this morning had 132 houses (excluding units and townhouses) on the market for rent with a median asking rent of $550 per week. For comparison, in Geelong West, your median asking price is closer to $530 per week for a townhouse or $660 per week for a dwelling.

So you start to understand the problem, cause and effect. This disparity between affordability and increased red tape costs has put the residential rental market in disarray, put people out of homes and caused investors to abandon the market completely. In the past six months alone, according to Proptrack, 12.8 per cent of investors have exited the rental market, and sold those homes to owner-occupiers, taking them out of the letting pool altogether.

The state government’s answer to this is to announce a crackdown on residential property managers, and they have announced a new task force to hold dodgy agents to account. I find this completely absurd. This task force will only add fuel to the fire with more bureaucracy, more red tape, and more needless costs, being pushed on an industry with tight margins, where the costs will be borne by those least able to pay it. Ultimately, any additional costs to a rental end up in higher rents, putting more pressure on lower income households, putting property out of reach of families looking to rent and increasing demand in the lower end of the market. For people with higher incomes, they will have more choice due to more supply, and less competition. Doesn’t quite seem fair, does it?

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