Yesterday morning, CoreLogic, an authoritative real estate data company in Australia, announced a shocking news:
Rent prices in Australia have hit a record high, breaking the median cost of $600 per week (equivalent to 2,802 yuan), once again sounding the alarm bells for the rising cost of living.
In CoreLogic's Q4 report, we can see median rents rising across the board in 16 regions across Australia, with an 8.3% increase so far this year.
Nowhere is this time the same spike in rents has been felt most clearly by those renting in the hard-hit Sydney region, with the average median rent rising to $745 a week, while the East and North regions have comfortably crossed the $1,000 mark.
There is no doubt that rents, which are the largest spenders, continue to rise, and many Australian families have been pushed to the brink.
According to the latest data from the Australian Bureau of Statistics (ABS), Australia's per capita income is $789 per week, while household income is $1,770, which translates to an annual income of $92,040.
At the current $600 a week rent, the annual expenditure would be $31,200, or about 30% of the average household income.
However, let's not forget that 92,040 Australian dollars is pre-tax income, and if calculated according to the 2022-2023 personal income tax of the Australian Taxation Office, the disposable income (income in hand) after the personal income tax payable by a family with an income of 92,040 Australian dollars should be between 71,660~81,193 Australian dollars (single-income and dual-income families).
In other words, this rent accounts for 34.27~43.61% of a family's disposable income, which is an unbearable burden for any family.
Combined with CoreLogic's report and recent economic data, there are four main culprits that have led to rising rents:
1
The cost of construction is too high –
Construction costs, i.e. material and labor costs, are already rising with inflation, and strong market demand has led to further increases in labor costs. Not only that, but the current high interest rate environment in Australia has also created high financing costs (borrowing costs), which has led to huge cost control challenges for builders, which ultimately reduces the attractiveness of real estate projects.
2
Loss of building capacity –
In addition to the more than 4,800 construction company bankruptcies caused by the pandemic, including some of Australia's largest quantitative home builders, the wave of bankruptcies in the construction industry continues in the post-pandemic era. According to the Australian Investment Securities Commission (ASIC), a total of 2,349 construction companies went bankrupt in 2023, compared to as many as 785 in the fourth quarter alone.
Therefore, the capacity of the construction industry has long been stretched, and in the case of a serious lack of production capacity, it will be more difficult to fill the gap on the demand side in the short term.
3
The progress of the approval is miserable -
As I mentioned in the article "Australia, a Historic "Dead End" Emerges!", published last week, the number of annual approvals for new housing in Australia has fallen to the lowest level in 10 years, and the speed of approval departments has limited the speed of private sector participation in construction, and on the other hand, it has also hindered the Australian federal government's ambitious plan to build 1.2 million affordable housing units in the next five years (only 830,000 units can be completed at the current pace).
4
The last one belongs to objective reasons
That is, the demographic structure of Australian families has quietly changed in the past few decades, from the large and large family living model of a few decades ago, to today's small family and small independent living model, coupled with the continuous rise in housing prices, resulting in small families can not afford large houses, and ultimately caused the market to be highly lacking in the status quo of small houses, and the supply of small houses is difficult to keep up with market demand, which is the embarrassing result of the above factors.
In addition to these microeconomic factors, one of the biggest macro incentives is the influx of overseas migrants to Australia, competing with local Australians for valuable housing.
Of course, in addition to this bad news, there is also good news – rent growth has started to decline, from 9.6% positive growth in 2021 to 8.3% in 2023.
If you keep waiting, you may be able to wait until the day when rents "normalize".
But how many families can afford to wait until that day?
For the vast majority of renters nowadays, there are not many obvious options: either continue to use about 40% of the after-tax income to pay the rent, or move directly to a relatively remote area with lower rent, or fly a windfall and buy a house directly.
The last option belongs to a very small number of people, and settling in the suburbs is a helpless choice for a considerable number of families, and continuing to resist may be the last line of defense for many families in the face of adversity.
However, for hard-fighting families, there is a premise for whether they can bear it - can their income be guaranteed?
If you don't even have the income to maintain the status quo, you won't be able to survive until the day when rents "normalize."
The leak coincided with overnight rains, and the National Australia Bank (NAB)'s recent poll brought a key entry point – the biggest concern for a large number of Australian families now is losing their jobs.
Coincidentally, the Australian Bureau of Statistics (ABS) has just released employment data for December 2023, showing a surprisingly negative growth in the number of new jobs in December - reaching 65,000.
In other words, the number of new jobs added in December fell by 65,000.
Although a spokesman for the Bureau of Statistics said that the sharp drop in employment data was due to the large base effect caused by too many new people in October and November, this statement cannot deny a very intuitive reality - high interest rates have caused the Australian economy to slow down rapidly, and the job market is the most intuitive indicator of economic strength.
So, if we look back at the reasons for the low attractiveness of construction projects, the lack of capacity in the construction industry, the skyrocketing rent prices, and the anxiety of residents about the level of the economy, we can see that the central factor is actually interest rates.
If interest rates fall, then the cost of financing for construction companies can go down, and more construction companies can join the ranks of filling the gap in the market.
If interest rates fall, then landlords in rental housing will also have less pressure to repay their loans, thus reducing the cost of interest rates passed on to tenants.
If interest rates fall, business activities and credit flow conditions across Australia will gradually improve, and reducing the operational burden on enterprises will actually increase the sense of employment security of employees.
So will the RBA cut interest rates this year?
The answer is very probable.
Looking back at the global interest rate hike cycle that began in early 2022, as well as a number of economic cycles in previous decades, we will find that it is basically the Fed that takes the lead in initiating the cycle of interest rate hikes and interest rate cuts, so once the Fed approaches the rate cut cycle, then other developed Western economies, including Australia, will most likely follow.
Just last week, Burstic, one of the Fed's directors, was dovish and said that he would consider cutting interest rates early (March) as soon as US inflation returns to the Fed's target level of 2%, and Burstic's dovish speech not only pushed the Dow Jones Industrial Average to the 38,000 mark for the first time, but also brought the long-stressed S&P 500 to a record high.
Therefore, the capital market is still optimistic that the Fed will cut interest rates in March.
If this happens, the European Central Bank, which is already in zero growth, and the Bank of England, which is already in trouble, and the Reserve Bank of Australia, which is "struggling to make a living", will be expected to follow suit with interest rate cuts in the coming months.
In this way, the post-epidemic rental crisis that has ravaged Australia for many years may finally come to an end.
As for how the RBA will say its position on interest rates on February 6, the people of Australia will wait and see.