Good news for property investors – rents are going to increase significantly over the next 3 years.

Property investors have already enjoyed rising rentals throughout Australia over the last few years as rising house prices, a lack of new home construction and cautious investors not putting as many investment properties into the rental market have caused rentals to increase in all our capital cities.

A review of recently released data from the REIA shows that rents have increased by around 25% in the last 3 years. But can they keep increasing? Will renters be able to afford more?

According to property commentator Michael Matusik the simple answer is yes!

Research by Matusik Property Insights www.matusik.com.au shows that 25% of the average renter's income went into paying their rent in 2004. Today rental households spend about 26% of their income on rent.

While it is true that rentals in some cities have become more expensive over the last few years – particularly Perth and Darwin – and some renters are doing it tough, the report suggests that in general renters can afford to pay more.

Matusik suggests that rentals are going to rise significantly over the next 3 years with an average increase of 35% by 2010. He anticipates the largest increases in Melbourne (up by 50%), Sydney(40%) and Brisbane (30%).

The latest figures from the REIA show vacancy rates in all capital cities averaging 1.9% in the September quarter. REIA president Noel Dyett says a vacancy rate below 3% is regarded as an under-supply.

We often read that vacancy rates across the nation are at historic lows, so let's look a bit more carefully at what this means and put it into perspective.

According to the REIA the average vacancy rate around Australia for the twenty years prior to September 2007 was 3.6%.Since March 2005 the vacancy rate in all capital cities except Darwin has been below this industry norm and has averaged 1.9%.

But this doesn't mean property investors can ask any rent they like.

At Metropole Property Management we are seeing well priced rental properties leasing quickly and the landlord has a choice of quality tenants.

On the other hand, if rentals are set at unrealistically high levels, properties remain vacant longer, costing their owners precious lost rental. It's not usually worth chasing that extra $10 or $15 per week when you take into account the cost of a week or two's vacancy.

Increasing rentals and decreased affordability also means that tenants are not moving as often – they just can't afford to.

This security of long term tenants, minimal vacancies and rising rentals is bringing smart investors back into the property markets. With this group of investors chasing the same type of properties, often inner suburban apartments, the supply and demand imbalance is causing property prices to spiral upwards.

It is obviously these tight rental conditions that have been pushing up rents and in some cases very significantly as the following table shows:

Summary of Rental Markets – September 2007 Quarter

Source: REIA; Metropole Property Investment Strategists

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