A perfect storm is brewing in the property market with political and economic factors putting the squeeze on rentals and driving up the cost of rent.
In scenes unheard of in Warrnambool's rental market, 25 people had registered to look through a two-bedroom unit in north Warrnambool just last week.
Real estate agents say they are desperate for more rental properties to lease to a growing number of potential tenants, but investors have been spooked by a number of factors. Ludeman real estate's Mark Dwyer said property had three major issue at the moment.
Labor leader Bill Shorten's threat of getting rid of negative gearing, a crackdown on lending by banks following the damming Royal Commission as well as the Victorian government's changes to rental laws were driving investors from the market, he said.
While fewer investors were entering the market, many were selling up the properties they do have. “There’s definitely a trend for investors to get out of the market, especially the residential market," Mr Dwyer said.
If things kept on going the way they was, things would only get worse in the rental market, he said. Mr Dwyer said if a future Labor government got rid of negative gearing it would be "an absolute shambles". “If they do it will be political suicide.”
Mr Dwyer said native gearing provided "a little bit of tax saving" for investors who have to actually run at a loss to get it. “If it goes, what incentive is there? There’s no incentive," he said.
Mr Dwyer said there were also more renters because banks were hampering potential buyers' plans to enter the property market by making finance harder to get.
"First home buyers are struggling to get into the marketplace," he said. "There's definitely more people renting because they're not buying."
Despite this, he said property sales and prices remained strong. "Warrnambool is definitely not falling. For a long time it's been steady. From a sales point of view, I don’t want it to get mixed up with rental, we’re actually going very well."
Mr Dwyer said Warrnambool was immune to the dropping house prices that Melbourne was experiencing. "It's a different market. You can't compare them," he said.
Rental law changes
He said rule changes brought in by the Victorian government last year which increased tenant rights had was also starting to have an impact.
“Owners are losing faith in system with the new rule changes," he said.
“From the ones I’ve been talking to, they feel they’re losing control of their own properties."
“To me it’s just going in the wrong direction. It’s going too far in favour of the tenant.
"In the past it might have been too far in favour of the landlord but at the moment it’s just gone the wrong way. The pendulum’s swung too far and landlords are getting out of the market place."
Mr Dwyer said that one of the biggest misconceptions was that all landlords were wealthy.
“It’s a big investment for most investors. Most of them are just working class people trying to get ahead," he said.
“We’ve got people here that rely on that rent coming in every month to the extent that we do the payout before the end of the month to help them out.”
Mr Dwyer said that the new rental rules, which were actually brought in to provide more security for renters, was actually working in reverse and making it harder for tenants.
“I just don’t see how five-year leases and being able to have dogs and make minor alterations is going to be able to help. I think it’s going to make it harder," he said.
“This what they’ve got to remember. The government can’t afford to house every person that can’t buy a house. To me it’s a problem."
RENTERS QUEUE UP
Mr Dwyer said he had never seen a situation where they had 25 people competing for a rental. “It’s a concern. I’ve never seen that," he said.
“We’ve had times when the market’s been tight, but not to this extent.
“Honestly, it’s our biggest concern here, where it's all heading. I’m more worried for the poor people trying to find a property to live in.”
He said that for the first time his 29-year career, he has been forced to get a 14-day police order issued to get tenants to vacate a rental property that had been sold. "They had to get out and they haven’t got out because they couldn’t find another property to go to. I feel for them," he said.
Mr Dwyer advised investors to wait before getting out of the rental market, because Warrnambool's property market was in a strong position. “I’d wait until the decision was made and then make a more educated decision before I got out because it might work out for the better."
Mr Dwyer said they were in desperate need of more rentals with there being practically a zero per cent vacancy rate.
He said it was only a matter of time before prospective tenants started offering more money to secure a rental property. Ludeman property manager Sarah O’Keeffe said the rental squeeze started before Christmas. “Some people are just applying for them sight unseen, " she said.
Out of more than 650 properties on their books, there were only a handful available at the moment.
RENT ON THE RISE
Ray White Warrnambool partner Fergus Torpy said people were playing above average yields for rental properties compared to three to five years ago.
“What we’re finding in the moment, there’s more demand than there is supply in the rental market," he said.
Mr Torpy said there was a drop in the number of investors because of concerns around the banks and the ability to borrow money as well as concerns over superannuation and negative gearing,
"We’re finding less new rentals coming to the market but not only that, we’re finding a greater increase in the amount of tenants there are," Mr Torpy said.
He said new developments on the fringe of town were bringing more renters into Warrnambool.
Mr Torpy said it was not that people don't want to invest, but there was a level of uncertainty that meant people were more conservative and less inclined to go down that path. “If you do have a bit of confidence in your financial capacity, Warrnambool’s probably a good space, because your cash returns are very strong and the yields are certainly improving," he said.
He said there had been a number of people who had sold their homes with the aim of renting for 12 months while they built a new home, but struggling to find somewhere to rent.
Tim McNally, of McNally Property Management, said they were finding that they were renting properties before they were even vacated by tenants because demand was so strong.
According to Australia Bureau of Statistics up to third of properties in Warrnambool were rentals.
Brian O'Halloran Real Estate and Co director Brian Hancock said that if negative gearing was taken away, there was naturally going to be repercussions with investor relinquishing their investment portfolio.
“If you get an influx of investors selling down their portfolios it will drive the market down to a point as it’s experienced in Melbourne now," he said. “If there’s an exodus of investors from the market, rents will rise.
“Everyone’s chasing their tail on this the way it’s going.”
Mr Hancock said that while there had been investors looking to sell off, there were those who were buying investment properties in Warrnambool while working and renting in Melbourne, just to get into the market.
He said he there was always ups and downs in the property market. "We’ve been through the GFC and different highs and lows since then," he said.
Small towns not immune from rental squeeze
The shortage of rental properties has also hit Camperdown and Hamilton with large infrastructure projects compounding the problem.
Ray White Real Estate Camperdown property manager Kathryn Milroy said the demand had driven up the cost of Camperdown rentals by 20 per cent over the past 18 months.
Ms Milroy said that about nine people were turning up to every open house and there hadn't been the vacancies that they'd traditionally seen.
Of their 350 rental properties, only four are available but most are occupied by tenants who are yet to move out. She said the number of large infrastructure projects in the region, including windfarms, had driven up demand.
At the same time, she said a number of investors had taken advantage of the the buoyant market and sold their rental properties. Ms Milroy said other economic and political factors had also played a role in investors' decisions.
"This week we've been contacted by two other companies to see what we had available," she said.
She said it had forced them to start calling property owners to see if they can offer their empty homes for rent.
Hamilton Real Estate director Simon Cullinane said they had never experienced rental demand like it before.
Mr Cullinane said that they only had two vacant rentals from their portfolio of more than 200, although more were about to become available. He said a queue for rentals meant those properties would be snapped up quickly.
One of the problems for Hamilton was that banks would not lend money to people unless they have job security, he said.
Mr Cullinane said much of the town's workforce was made up of workers on short-term contracts of between one to five years such as teachers.
“The banks don’t look upon a short-term contract as security enough for them to lend money to people," he said.
"There’s lots of jobs here in Hamilton. It’s the banks that will not lend money for people to buy homes because they don’t view two, three five-years contracts as job security. So therefore any person that moves here wanting to buy a home has no option but to rent.”
He said it was a major turnaround from 15 years ago where people could easily access finance and use the first home owners grant as a deposit.
Public housing under pressure
The number of people waiting for public housing in the south-west has increased by a third in the past two years, latest figures show.
By December last year, the number of people waiting for public housing was 596 compared to December 2016 when there were 408.
In just three months from September to the December 2018, the list had increased by 54 people across the south-west which includes Warrnambool, Portland, Camperdown, Dunkeld, Hamilton, Port Fairy and Casterton.
A Department of Health and Human Services spokesperson said Victoria was experiencing a low turnover of public housing properties.
With an occupancy rate of 97 per cent across the state, the demand was impacting on the availability of properties, the spokesperson said.
One young Warrnambool mum, who has been living in one room at a friend's house, said she had been searching for somewhere to live for months and had inspected too many rental properties to count.
She said she had been on the housing priority list for a public housing property, but was expecting a two-year wait.
In December 2015, the waiting list was trending downward and had falled from 513 the previous quarter to 497, and by December 2016 that number was down to 403.
In 2009, the public housing waiting list in the region was as high as 645.
The spokesperson said comparing figures was complicated by the creation of the new Victorian Housing Register which combined both the public housing waiting list with registered housing agencies.