Experts predict Geelong rents to rise as landlord group pushes for hikes

Geelong’s rental market has a tight vacancy rate.

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Long-term tenants face daunting rises in rents in Geelong, even if the city’s market for rental homes follows the inflation rate over the new decade, new analysis shows.

The figures reveal how the median asking rent for houses in Geelong could jump from the current $525 a week almost $750 a week by 2035.

That analysis is calculated using Australia’s average inflation rate, a long-term trend the rental market traditionally follows.

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But other factors could change the trajectory of rents, such as the impact of state government regulations, investors looking to claw back losses from higher interest rates and other costs, such as land tax, or how much the future pipeline of new homes flows into the rental market.

SQM Research founder Louis Christopher is forecasting a 1 to 3 per cent increase in rents across Melbourne next year, lower than interstate capitals after the state government announces a raft of reforms around the rental market.

But Mr Christopher noted that most larger Australian rental markets have tracked fairly closely with the Consumer Price Index.

SQM Research director Louis Christopher.

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Prior to the pandemic, this tracked near to 2.6 per cent – in line with the Reserve Banks’s target range for inflation.

“It should get back to pre-covid levels, and that will be reality in time,” he said.

While increased building should help stop rents increasing much more than this, he still advised tenants would be better off buying a home if they could afford it.

“Yes the market is going to pick up in the next year, but I think the way it’s gone for tenants who have turned into first-home buyers than has been better over those who remained as tenants, and I don’t see that changing any time soon,” Mr Christopher said.

Maxwell Collins Geelong director Nick Lord said vacancy rates were at their lowest as the raft of changes impacting property investors caused a clean-out of investor stock.

Geelong rental vacancy rates remain historically low as investors leave the rental market.

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“Our business at one stage had four properties available for rent, which is the lowest vacancy rate I’ve seen in 25 years,” Mr Lord said.

“This shows a shortage of rental properties off the back of government legislation around compliance causing investors leaving the market in droves.”

Mr Lord said while the government was trying to protect renters, they ignored how supply and demand sets prices.

But more new investors were focused on the capital growth trajectory in Geelong, compared to existing landlords watching diminishing rental returns due to rising costs.

Some landlords will be tenant-minded, mindful of how far they push rent rises to make sure they hold on to good quality tenants, others just want to get a return on their investment, so will be looking to increase rent, Mr Lord said.

Property Investors Council of Australia chair Ben Kingsley said landlords should pursue rent rises above CPI to recoup rising costs.

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Property Investors Council of Australia chair Ben Kingsley said they were advising members and all landlords across the country to pursue rent rises well above CPI.

“Where conditions are such that vacancy rates are low, we are encouraging our PICA members and all landlords to increase their rents by 4-5 per cent, while the land market conditions can accommodate it,” Mr Kingsley said.

“To get their investment back on an even keel. And if governments continue to increase taxes and increase the costs, we will go even higher to recommend 5-6 per cent.

“And we think that’s a very reasonable response to get a return on investment that we are not getting at the moment.”

New analysis reveals how far Geelong rents could rise if it followed the average inflation rate.

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However he said that if government plans to boost the nation’s supply of homes did occur at levels to improve or even pause housing affordability issues, investors would struggle to raise rents.

Mr Lord said while overseas and internal migration would continue increase rental demand in Geelong, the city’s growth corridors such as Armstrong Creek would help feed that growth by building more dwellings.

“I think that we’ll be building house and land packages at the appropriate price point to give affordable rentals for people,” he said.

Investment properties typically make up 25 per cent of new homes built in growth area suburbs, he said.

“I think Geelong is undervalued, so people are not even worried about interest rates, long or short term. They’re just wanting to jump in to the market,” he said.

with Nathan Mawby

GEELONG’S 10-YEAR RENT FORECAST

Source: Median home price, rental data from PropTrack. Forecast growth based on average CPI. Figures for houses.