The Real Estate Analyst
  • About
  • Why Residential Property?
  • The Property Clock
  • Archive
  • Contact
From the Rooftops

Rating the vacancy rate

15/8/2016

 
Reprint (originally published in 2013)

​Speaking of perceptions and realities, I was just reading another media piece asserting that a residential vacancy rate* of 3% indicates a market in equilibrium and therefore it can be construed that higher levels of vacancy equal bad while lower means good. It has become a conventional wisdom.

I was in the room when a well known commercial property fund manager first uttered this alleged fact back in the mid eighties.

We were both speakers on an investment panel in a hotel ballroom in Adelaide at the time. When he finished speaking I asked him how he arrived at 3% (I was the residential guy on the panel and he was in my space). He shrugged and motioned towards the sky where he had clearly plucked his “fact” from. It has been quoted ever since.

Turns out he wasn’t too far off the mark as generalisations go, but as you know, I’m not a fan of generalisations. So I revisited the rental vacancy data from 1980 to the present day to establish the average vacancy rate for each major urban market over the last 32 years and here’s the deal:

Sydney  –  2.23%
Melbourne  –  2.52%
Brisbane  –  3.25%
Perth  –  3.34%
Canberra  –  2.55%
Adelaide  –  2.62%
Hobart  –  2.69%
Darwin  –  5.65%

Clearly the take home is there are significant differences between cities with Sydney proving the tightest rental market over time while the capital cities of the mining states have had the highest vacancies in the long term.

As an aside, taking a closer look at Darwin’s numbers, there have been a couple of extended periods where vacancy rates have exceeded 10%. If that happens again (as the mining boom continues to fade?) with median prices in Darwin already punching above their weight, we could see very substantial price declines as investors attempt to exit that market. Beware.

More importantly, our largest cities Sydney and Melbourne have consistently out-performed other markets on the vacancy front which should translate to more consistent and reliable rental income over time. It also reflects the underlying strength of our larger markets over time in the all important supply and demand relationship.

On that measure, big is beautiful.

* The vacancy rate is calculated as the proportion of all properties in the private rental market that are vacant at a point in time, expressed as a percentage.
      Enter your email address to follow The Real Estate Analyst and receive notifications.
    Follow

    Author

    An ongoing collection of thoughts, opinions, observations and recommendations by long time property analyst and commentator Brett Johnson.

    ​Brett has been actively involved in property investment, research and management for forty years. He is a passionate advocate of planned, counter-cyclical property investment with a special focus on understanding the behaviour of property markets. He is a regular commentator on property investment and markets in Australia and an author of The Wealth Power of Property series of books.

    Archives

    November 2017
    July 2017
    June 2017
    August 2016
    March 2016
    August 2015
    April 2015
    March 2014
    February 2014
    December 2013
    September 2013
    August 2013
    July 2013
    June 2013
    May 2013
    June 2011



The inside information on residential property investment

​Copyright. The Real Estate Analyst     |     ABN 26 358 927 595     |     Contact     |     Home     |     Disclaimer     |     Terms of Use     |     Privacy

  • About
  • Why Residential Property?
  • The Property Clock
  • Archive
  • Contact