The increase in population, combined with below average building approvals, suggests it would take a dramatic change to the current economic climate to increase building approvals enough to keep supply up with the demand for housing. Peter Mumford reports.
Sydney's population is rising and is expected to increase to approximately 5 million by 2020. Last year Sydney's overall population grew by 1.7 per cent, or 75,000 extra residents, to 4.58 million, representing 63 per cent of the state's population.
In addition to the lack of supply of new housing and an increase in population imbalance, is the increased conservatism among some investors. Although rental yields are increasing, some investors are being influenced by media coverage suggesting house prices are overvalued and are sitting on the sidelines. We are experiencing unusual times where saving rates are increasing, and spending on credit cards is decreasing and an appetite for debt is falling.
Compounding this situation is affordability - preventing many tenants from being able to afford to buy their own home, so many are expecting to continue renting as a long term option instead of buying. This is confirmed in a survey conducted by property researcher Michael Yardney where seven out of 10 tenants want to buy their own property and only half anticipate doing so in the next 12 months.
Most want to stay in their current accommodation and are willing to pay more rent rather than move. Two thirds of the renters surveyed said they were prepared to pay five per cent more in rent, while a further 30 per cent said they would accept an even bigger rent increase in order not to have to move.
According to RP Data, rents in Sydney increased by 5.3 per cent in the 12 months to March 2011.
With the gross yields on investment properties around five per cent or greater, now may be the time to reconsider buying your first investment property or adding to your existing portfolio.
Peter Mumford is the Director of McGrath Manly. Phone 8962 2200 or 0411 174 008 or email petermumford@mcgrath.com.au
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