But the chart significantly understates the rental rises due to it being based on the rental indices constructed by the ABS for the purposes of the CPI index calculation. The indices are adjusted for things like quality and thus understate the actual rent increases. The author of the chart, Unconventional Economist, has recognised the limitations of the chart in that respect and has asked for better rental data.
Good points. Yes, in nominal and 'non hedonic quality adjusted real' terms, rents probably went up pretty much everywhere.
Sydney rents increased 4.1% in real (CPI adj) terms since 2000 (0.4% annually) while house prices increased more than 50% in real (CPI adj) terms (~4% annually)
Does this suggest shortage driven price growth?
The Sydney boom peaked in 2003. Construction activity had been strong during the boom, and by 2003, rental vacancy rates were around 5%, so there was a huge over-supply of property. As a result, rents flatlined and house prices declined by about 20% in real terms over the following half a decade while that over-supply was gradually consumed.
Fast forward to 2008... construction activity had slowed right down after the boom ended, but the population kept on rising. As a result, Sydney rental vacancy rates had dropped to 1-2% by 2008, which is where they still are today (1.3% according to SQM), and house prices started rising again. The over-supply had gone, and we had moved into a shortage scenario.
Nice story but it does not correlate with the chart or other data
Rents started falling in 2000 not 2003, construction was at the record levels in 2004 not 2003, and rents started rising again in 2006 not 2008.
Nice story but it does not correlate with the chart or other data
Rents started falling in 2000 not 2003, construction was at the record levels in 2004 not 2003, and rents started rising again in 2006 not 2008.
None of what you said contradicts my 'story'. I didn't specify dates upon which rents started rising/falling or construction was at 'record levels'. The data in the chart is consistent with what I said happened. Also, I was in Sydney, and experienced it first hand.
The Sydney boom peaked in 2003. Construction activity had been strong during the boom, and by 2003, rental vacancy rates were around 5%, so there was a huge over-supply of property. As a result, rents flatlined and house prices declined by about 20% in real terms over the following half a decade while that over-supply was gradually consumed.
Fast forward to 2008... construction activity had slowed right down after the boom ended, but the population kept on rising. As a result, Sydney rental vacancy rates had dropped to 1-2% by 2008, which is where they still are today (1.3% according to SQM), and house prices started rising again. The over-supply had gone, and we had moved into a shortage scenario.
Yes, what you are saying supports the claims that -ve gearing has not boosted resi-construction as well as it would if it was limited to new builds only... thanks.
Yohan, you are both unfair and inaccurate. I have been a critic of giving cash to first home buyers since 1980; and a critic of ‘negative gearing’ since at least the mid-1990s. I was often critical of negative gearing whilst employed by ANZ, as various reporters who quoted my views on the subject could readily attest. Other readers might also recall how, as Treasurer, Peter Costello rang up then ANZ CEO John McFarlane and threatened to take (in McFarlane’s words) “regulatory actions that ANZ wouldn’t like” if I repeated (fairly mild) criticisms that I had made about some of the Howard Government’s accounting practices.
So, Yohan, by all means say I am wrong if you think I am; but don’t call me gutless.
Can I also add that, at 53, I am nowhere near retirement (even if my rapidly greying hair gives me that impression). I have two young children; I can’t afford to retire.
Rents certainly rose in Sydney, the biggest city, when NG was removed...
Of course this doesn't prove the rise was totally caused by the removal of NG. Rents would probably have risen in Sydney anyway (just to a lesser degree).
Rents didn't rise everywhere, but perhaps they would have fallen if NG had not been removed, so removal of NG kept rents flat, rather than allowing rents to fall.
Logic suggests that NG will place upward pressure on house prices and downward pressure on rents, but there are always other factors at play, so the negative/positive influence of NG may not always be strong enough to over-ride the other factors affecting the market.
So Rastus (assume that's still your preferred name on this forum), why do you believe NG was reintroduced, if not because its removal led to upward pressure on rents?
Yes thanks Shadow if you want to addres me then Rastus would do fine since that is my nick chosen here.
Now.. from your own mouth,
"Of course this doesn't prove the rise was totally caused by the removal of NG. Rents would probably have risen in Sydney anyway (just to a lesser degree)."
Why do I need to answer your question of " why do you believe NG was reintroduced, if not because its removal led to upward pressure on rents?" when you 1/2 answer it yourself... you already admit that there is no strong evidence that removal caused a rise in rents.. and you admit it certainly did not occur Australia wide anway...
It is also logical to conclude that It was not reintroduced to reduce rents.
It was reintroduced due to political pressure from REIA and property investors...
Have you not seen This great story from someone who was deeply involved at the time..
If not, read up and then come back with hard evidence for your theory that -ve gearing in it's current form for IP's is actually doing the job that many IP investors claim it does (ie. keep rents down and help with the housing shortage).
It does not, and could be made better at both these tasks with some tinkering.
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