Rental yields to soar

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Property investors can expect to reap even higher yields as rents continue to surge amid dwindling housing supply.

Total new home starts data from the Australian Bureau of Statistics showed a hefty drop of 3.7% in the June quarter – its lowest level in 12 months. A massive drop of 16.2% to 10,878 in multi–unit starts contributed to the overall decline.

The Housing Industry Association is predicting a shortfall of a further 45,000 dwellings in 2008/09, widening the gap of 85,000 homes over just a two–year period.

This tightening supply is already pushing rents up to levels not seen in almost two decades. According to Commsec, rents are currently growing at 7.7% per year, a near 19–year high.

“Rising rents and falling interest rates will attract more investors into the housing market,” said Craig James, chief equities economist at CommSec.

Bad news for renters as the tight rental conditions are unlikely to be alleviated any time soon “with tenants still staring down the barrel of double–digit percentage increases in rents,” James said.

“The simple fact is that we haven’t been building enough accommodation to house our growing population, as evidenced by rents rising at the fastest rate in 19 years. The best that state and federal governments could do for inflation, and therefore interest rates, is to fundamentally address the rental crisis. But it’s clearly not happening, [which is] keeping interest rates higher than they should be.”

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