Rise in rental vacancies raises questions about housing shortage and soaring prices

Australia’s rising property prices are due to the free flow of capital over the last decade and not a housing shortage, an industry expert has said.

The comments come as new figures from analyst SQM Research reveal Melbourne vacancy rates have increased to 3.5%, with Brisbane and Sydney also increasing, questioning the notion that a lack of housing is driving up prices.

Louis Christopher, head of property research at Advisor Edge and founder of SQM Research, says it is debatable whether capital cities are seeing housing shortages. He points to the SQM figures, which reveal almost 11,000 rental properties are available in Sydney, with a vacancy rate increase from 1.7% in November to 2% in December.

Melbourne’s rate grew from 3.1% to 3.5%, with Brisbane also recording an increase from 2.9% to 3.4%. In Canberra, rates grew from 0.7% to 0.9%.

Christopher says these figures, which indicate thousands of available properties for rent in the capital cities, question the myth of a housing shortage.

“I think it’s very debatable whether there is a shortage… and especially in Melbourne whether there is one or not. We have to be careful about how this is discussed, because the topic is certainly up for debate.”

Lack of housing has been pinned as the main cause for rising house prices by several analysts. And those increases are set to continue, with new data from Westpac indicating consumer expectations of rises in property values.

According to an extra question included in the January Westpac-Melbourne Institute Consumer Sentiment survey, 84% of respondents believe prices will increase over the next 12 months. About 21% expect gains of over 10% in Victoria.

The figures also question the notion that interest rate rises will put a dampener on rising values. Since September the Reserve Bank of Australia has increased rates in three consecutive meetings, but consumer sentiment has continued to rise.

Christopher suggests the rise in values is not due to a lack of shortage but to the easy access of capital experienced over the last 10 years, a development he labels as a “potential problem”.

“There have always been a number of combinations responsible for driving growth. Of course low interest rates, better access to credit and the first home owners grant have pushed up prices. Those have just been the past year, but for the best part of the decade easy access to credit has been available.”

“It’s a risk, and a potential problem. We hypothesise the only reason we have major growth is due to ease of credit, but income growth is also doing quite well. Especially in Melbourne, the employment market has been quite buoyant, which helps with house prices.”

But despite the risk of rising prices, which he says will block more people out of the housing market, Christopher says the likelihood of a crash isn’t high.

“I am not forecasting for one moment we’re going to have a crash. Much still depends on the global economy, if we have a double-dip recession then I think it would affect us, and it would have negative ramifications. But for now, I predict that won’t happen.”