Australian news headlines remind us daily of the property market’s challenges with rising costs and spiralling demand.
Things aren’t simple right now. Rental property owners are under pressure to do the right thing by the people who occupy their homes, while trying to stay on top of high interest rates and even higher expectations. Meanwhile, property managers are dealing with Victorians “abandoning” their investments and the pressure of managing dozens or even hundreds of rental property applicants when they post a listing.
These are the biggest problems when it comes to the rental market in Victoria at present:
Lack of supply
A steep jump in migration has led to population growth. In 2023, growth in Greater Melbourne was 3.32%. Prior to the pandemic, population increases were closer to the 2% mark.
Lack of supply has reduced vacancy rates, with figures at 1.47% in June 2024.
High ownership costs
After rental property owners in Victoria were hit with updated legislation in 2021, many had to upgrade their investments in order to meet new minimum standards. Following this, near record high interest rates in 2023 and 2024 have put even more pressure on capital gains. The financial stress has prompted some owners to sell, leading to even fewer rental properties on the market.
Rising property prices
While Melbourne hasn’t been as dramatically impacted by increasing property prices as other states over the last twelve months, buying a place is still out of reach for many couples and investors.
Land tax changes
Another cost… Victoria dropped the tax-free threshold to $50,000 from $300,000 and lifted the tax rate to $975 plus 0.1% of the value of property worth more than $300,000.
Incoming new rental property legislation
There is the potential for additional costs from 2025 onwards as rental property owners take steps to comply with new legislation related to insulation, safety, heating and cooling.
Building approvals
While building approval figures are on the rise in Victoria, they are still low in comparison to previous years and there will be a lag between supply and demand.
What will the next five years look like for rent rolls in Victoria
The above issues demonstrate how complex the web of supply and demand has become and why some property managers say clients are selling up in high numbers.
However, it’s not all doom and gloom. For example, the state government recently approved a 925-home pair of tenants-only towers by developer AsheMorgan in Docklands. As The Urban Developer reports, several other apartment projects are also under way at Docklands including projects by Lendlease and MAB.
Meanwhile, the Government has set a target to build 800,000 homes in Victoria over the next decade. This is part of a larger plan to streamline approvals and create more affordable living solutions.
What’s more, it has been confirmed residential construction costs are slowing, with CoreLogic reporting annual costs increased 2.6%, marking the smallest annual rise in the national CCCI since March 2002 (2.3%) and significantly below the pre-COVID decade average of 4.0%.
If we had a crystal ball, we believe it would show the next five years as being a slow journey to recovery. There may be some new initiatives to reduce the number of empty and underused homes in Melbourne, which a recent report claims is as many as 100,000. Outcomes may also be influenced by a change in stamp duty requirements, with some officials suggesting this prohibitive expense could be replaced with land tax.
Anyone who owns property should be placed to benefit from it. As one advisor pointed out, the renter crisis means now is the time to invest in Victoria and Melbourne, as the market is generally sluggish and many investors are pulling out. Those who can stretch themselves to make a purchase now may find they reap the benefits when interest rate levels finally recede.
While supply and demand level themselves out, savvy rent roll owners will take a pragmatic but proactive approach. Pragmatic in accepting this difficult period in the market is here to stay for the time being but proactively seeking ways to secure quality clients, streamline operations and maximise reputation.
It’s an impossible matrix and a delicate balance for real estate professionals right now. Those who understand the ebbs and flows of the industry will leverage their expertise to stand out and make it through these difficult times.