Tasmanian Rentals: Why the Rental Market Is Facing Grim Times Ahead
The Tasmanian rental market is in for a bumpy ride in the coming years, with a combination of factors leading to a sharp decline in the number of available rental properties. The soaring interest rates and inflationary pressures in the residential building sector have caused property investors to leave the field, meaning that there are fewer properties available to rent. This, coupled with Tasmania’s booming post-Covid population projected to reach 640,000 by 2032, has seen Tasmania’s rental vacancy rate plummet to just one percent.
In this article, we will explore the various factors contributing to the current rental crisis in Tasmania and what it means for the state’s residents.
Tasmania Needs to Build More Dwellings to Keep Up with Population Growth
According to the Housing Industry Association, Tasmania needs to build an additional 3,100 dwellings each year for the next decade to keep up with population growth. However, the current state of the rental market makes it difficult for property investors to justify the construction of new rental properties. The costs of residential building have been increasing steeply, and rents no longer cover these costs.
As a result, property investors are leaving the field in droves, and the rental vacancy rate has plummeted to just one percent. While rents across Tasmania are rising sharply, landlords’ rent is no longer covering the cost of residential building.
The Spooking of Investors
A significant factor in the spooking of investors is the fact that while rents can only increase by so much, they are tied to the value of the property. There is no ceiling to how high mortgages can soar under rising interest rates. This situation has led to a rental crisis in Tasmania.
The Real Estate Institute of Tasmania (REIT) has said that investment yields in Tasmania have now plummeted to their lowest ever levels. REIT President Michael Walsh has described the situation as “diabolic,” and said that pressures on the rental market had been building for a decade. He also said that the worsening market conditions for investors “exposed” a rental market on the verge of systematic collapse.
The Housing Industry Association’s Executive Director Tasmania, Stuart Collins, previously said that while 2021-22 saw record rates of housing approvals and residential construction, he expected that to collapse this year. “We can see there is going to be a bit of a hole towards the back end of this year,” Mr. Collins said. “It was only 18 months ago we were talking about material and skills shortages as we built a record number of homes.”
Tasmania’s Booming Population
Tasmania’s booming population is another contributing factor to the current rental crisis. Leading demographer Bernard Salt revealed that the state’s population, currently about 588,000, is expected to reach 640,000 by 2032. The smaller average rate of occupancy per dwelling in Tasmania than the rest of Australia – 2.34 residents per dwelling, as opposed to 2.52 on the mainland – exacerbates the situation.
The Early Indicators Are Ominous
According to Master Builders Australia’s most recent Tasmanian snapshot, new home building approvals plunged 33.7 percent year-on-year to 191 in December 2022. As approvals plummet, costs are rising. Residential construction costs rose 11.9 percent over the calendar year, according to CoreLogic’s Cordell Construction Cost Index.
Conclusion
In conclusion, the Tasmanian rental market is facing grim times ahead, with soaring rates, steep hikes in the cost of residential building, and rents that no longer cover costs. The rental crisis is affecting the state’s residents, particularly those on lower incomes, who are finding it difficult to secure affordable rental properties.
Apartment buildings are popping up across the state, but most are being purchased by owner-occupiers or short-term accommodation providers such as Airbnb, leaving few options for long-term rentals.
The Tasmanian government is attempting to address the issue with a suite of housing initiatives, including a $1.9 billion housing package announced in last year’s budget. The package includes a range of measures such as building new social housing, providing incentives for private developers to build affordable housing, and supporting home ownership for first home buyers.
However, the impact of these measures is yet to be seen, and many are concerned that they may not be enough to address the growing housing crisis.
In the meantime, those in the rental market are feeling the brunt of the crisis. With vacancy rates at an all-time low and rental prices skyrocketing, many are struggling to find affordable accommodation.
As the situation worsens, experts are warning that the crisis could have significant social and economic implications for Tasmania. If left unchecked, the lack of affordable housing could lead to increased homelessness, a decline in population growth, and a hit to the state’s economy.
It remains to be seen how the Tasmanian government will address the crisis, but one thing is clear – action is needed urgently to prevent a total collapse of the state’s rental market.
