CPI report: rents rise strongly but less than 'forecast'

Media release, 24 April 2008

Sydney rents rose 1.7 per cent in the three months to March 2008, and six per cent over the year, according to the latest report on the Consumer Price Index released yesterday by the Australian Bureau of Statistics.

These increases were amongst the strongest contributors to rising inflation, being well above the rise in the Sydney CPI generally: 1.4 per cent for the quarter, and 3.9 per cent for the year.

Nationally, rents rose 2 per cent for the quarter, and 7.1 per cent for the year, compared to rises in the CPI generally of 1.3 per cent and 4.2 per cent.

Rents have also risen faster than incomes, which in New South Wales increased 3.9 per cent over last year.

‘Landlords aren’t helping in the fight against inflation. These are strong increases that tenants can ill-afford’ said Chris Martin, Policy Officer for the Tenants’ Union of NSW, ‘and they make even more urgent the need for governments to act on affordable housing.’

‘Nonetheless, the rent increases are less than some of the forecasts that were put about a year ago’ said Mr Martin. ‘Remember, the Real Estate Institute was talking about increases of 20 per cent – more than three times higher than what has actually happened over the year.’

The Tenants’ Union puts the discrepancy down to a combination of factors. ‘First, those over-the-top ‘forecasts’ came from players in the industry with an interest in talking up rents.

‘Secondly, well before rents started to take off many tenants’ budgets were already stretched. This has been a bit of a brake on rent rises’, said Mr Martin. ‘In fact, in 2002 about a quarter of the New South Wales private rental market was already in housing stress – that is, they’re low income households paying more than 30 per cent of their incomes in rent. Significant number of these households go without basic things like health and dental care and school excursions for their kids. So a large part of the rental market just does not have that much more money to be squeezed out in higher rents.’

‘Thirdly, because many landlords increase their rents most strongly between tenancies, many tenants have decided to stay put in their current tenancies. The number of new tenancies being entered into, as measured by the lodgement of rental bonds, was down 4.6 per cent last year. That’s not because there are fewer tenants – on the contrary, the number and proportion of people renting is growing – but because there are fewer tenants moving. Instead, tenants are staying put and, because in most cases the landlord knows they are a good risk, their rents are staying a little lower than the rents being asked for new tenancies.

‘The downside of that is the shortage of vacant rentals, and reduced labour force mobility. That’s another capacity constraint on the economy – caused by the lack of affordable rental housing.’