RBA punishment, soaring rents, supply crises and a stubbornly positive market…2023 was the year that had it all.
Here are some of the memorable moments and events that shaped the year.
The RBA backed up a harsh 2022 with a series of rate rises in 2023 too. Governor Phillip Lowe was seen as borrowers’ public enemy number one for much of the year, before handing the reins over to Michelle Bullock.
All up the central bank hiked the cash rate five times in 2023, putting the 30-something per cent of the nation paying off a mortgage under extreme pressure, while gifting retirees some decent returns on their savings and cash investment products.
The official cash rate ended the year at 4.35%, its highest level in 12 years.
The moves were part of the ongoing attempt to get inflation back to the RBA’s target range, but ironically, the higher rates pushed up asking rents, which are one of the measures of inflation, as landlords passed on the pain to their tenants.
The other big victims of the rate rises were would-be borrowers, who have seen their borrowing capacity plummet further. All up, someone eligible to borrow $1 million in April 2022, would now be able to borrow less than $700,000.
Supreme rental growth
Vacancy rates have tightened significantly in recent times and this is only intensifying in the current economic conditions. A number of factors have contributed to a severe shortage of rental supply, which has seen the national vacancy rate fall to 1% according to SQM Research data.
Some of those factors included investors selling off investment properties to owner-occupiers, a spike in properties transitioning to short term holiday style accommodation and more people forced into the rental market because they were unable to purchase.
Capitals such as Perth, Brisbane and Adelaide have been around the 0.5% vacancy mark for most of the year, resulting in asking rent price growth of more than 15% over 12 months.
This has meant great opportunities for investors to supercharge their cashflow. Especially those who are not as heavily indebted as others. As we wrap up the year, it’s worth ensuring you are achieving market rate for your asking rents, as you could otherwise be missing out on thousands of dollars a year.
Supply and demand
Rentals weren’t the only properties in short supply. There are still more buyers than properties for sale in most capital city markets.
Construction has a lot to do with this. There are not enough properties being built each year to meet targets. The Federal Labor government may have promised 1.2 million properties over five years, but already the nation is on track to fall well short of the first year’s target.
Construction companies have been collapsing, costs of materials have blown out and there’s a shortage of labour. Then there are the three layers of government needed to approve and facilitate developments, with local councils either rejecting too many applications, or presiding over delayed approval processes.
There are not enough projects underway to cut into the current supply shortage and, to add fuel to the fire, the government has opened the floodgates to hundreds of thousands of migrants to come into the country and help stave off recession. The majority of these will enter the country via Sydney and Melbourne, which will exacerbate supply shortages in those cities.
Against the expectations of many economists, property prices have recovered from their recent correction phase and begun the slow climb into a new growth cycle. This is despite the effects of the rate rises.
As always, supply and demand is the main driver. So as long as people keep coming into the country, and we keep falling further behind on construction, it’s hard to see how values could suffer any kind of meaningful fall.
And with a number of banks now predicting the cash rate hike cycle at an end, with the chance of rate cuts later in 2024, we can expect values to hold firm for the next year.
It’s another great time to get into the market if possible, because there are still bargains to be had in a lot of markets, while rental returns will continue to be lucrative for the immediate future.