Rents set to rise as housing affordability level continues to drop

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According to the latest Residex Market Update, there was about 3% growth in residential property markets nationwide over the year ending December 2013.

Residex founder John Edwards said that the growth was not consistent across all states. While Sydney and Melbourne were stand-out performers, Canberra, Hobart, Adelaide and Darwin failed to produce growth equal to or better than the national average.

With house price growth of 11.99% and unit growth of 10.45% over the year, Sydney’s stats put it at the front of the pack. At the other extreme, Canberra turned in the worst performance with house price growth of just 1% and unit growth of 1.4%.

However, Edwards said his calculations showed it is very difficult for the median family in Sydney and Melbourne to support a family on the cash remaining after home loan repayments.

This meant first home buyer (FHB) activity, which is at record low levels, was under-represented in these markets and had largely been replaced by investor activity.

Both Sydney and Melbourne were moving to be renters markets where investors are the owners of residential property, Edwards said.

“These markets are maturing and an unfortunate consequence of this is the increasing unaffordability in the markets. However, when looking at mature markets throughout the world, you can see that renting is more the norm than ownership.”

The situation could eventually lead to substantial increases in rent. This would impact on the next generation’s standard of living and cause problems for future governments dealing with rental affordability issues.

In the medium to longer term, it was difficult to see a situation where housing prices would decrease in value and rentals would do anything other than increase, Edwards said.

Over the next 12 months, Edwards predicted that Sydney and Melbourne’s growth would be a little lower than it was in 2013. All other capital cities would record better growth than they did in 2013 - with Brisbane likely to be the front-runner.

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