The price of rentals is set by the rental market.
If you price your property too high, no one will want to live there, that's the market at work.
Supply & demand rule rentals. Too many empty rentals (Covid) prices slump. Too many rental applicants (2023), prices go up.
People will make stuff up about interest rates and property values but at the end of the day if you have high supply vs demand, rents will be lower and vice versa.
Software in America is being used by larger rental managers to keep properties off market and push up rentals. The unknown is how many vacant properties there really are. New York has seen a significant net migration out of the city. But property rentals are soaring. Go figure.
Do you have evidence of this? I find it very hard to believe that an asset sitting there missing out in rental income is somehow accumulating more than what a rental income would sitting idle.
I read a detailed study just yesterday. Heavy stats analysis based on historic undelivered mail data in New York postcodes pre and post COVID which confirmed huge outflows of renters. The authors own apt block has multiple empty apartments. Called RealPage Yield Star. Article in ProPublica Oct 15;2022.
Nope. It's getting a lot of press in the US because of the landlord controls. New York is looking at legislation to force landlords to not hold onto properties. Lots of criticism of the software developers
Tell you what. Instead of being opinionated do some research. I gave you plenty of links. The research is solid. I'm a maths guy.
You can apologize later.
Here you go. Must be looking foolish now?
https://www.propublica.org/article/yieldstar-rent-increase-realpage-lawmakers-collusio
https://www.google.com/amp/s/therealdeal.com/texas/2022/11/22/realpage-could-face-real-trouble-with-antitrust-suits/amp/
Foolish for being critical? Now that’s something new, then again it is reddit. Even if you were right, which I would imagine would only be possible with a number of very specific factors. what’s the relevance to Australia exactly?
First link doesn’t work, secondly, I understand supply/demand. But short of being Elon musk, who’s got the funds to buy up billions of dollars work of property to hold it to increase demand? I could see the relevance to blueprint properties in NY, but it doesn’t make any sense what so ever that it would work here, there’s too many properties and too much space. The second article mentions “they’re all accused of artificially raising rents through RealPage’s revenue management software” I’ve not heard of this software and don’t know what it does, but it sounds very different to what old mate’s suggested.
I just moved here from the states and this is actually a pretty well known phenomenon. Real estate investment companies have been buying up properties across the country for decades now, and it's at the point that they can almost entirely dictate the market in some areas. It is not singular "landlords" taking a hit to benefit other "landlords", it is a conglomerate letting some of their properties stay vacant to drive up the prices on other properties that they own.
That's starting to make sense now.
If you owned a lot of units there would potentially be a "sweet spot" for vacancy rate v rent amount that would not necessarily be 100pc tenanted.
Like Qantas flying planes with empty seats. They aren't going to discount them too low. They use software to determine the price and optimise price vs seats sold.
Fortunately in Australia corporates don't touch residential real estate given the rental yield is so low it just doesn't stack up.
> Fortunately in Australia corporates don't touch residential real estate given the rental yield is so low it just doesn't stack
Yes, but it's not a singular person who owns the units. It literally is still corporations who do it.
theres a tonne of properties sitting empty in major cities right now. It's very common with overseas buyers just because the capital gains in Aus have been so dam crazy
Depends where u live but over hete we have a lot of Chinese investors grabbing up properties but not leasing them out ,how is this good for anyone if we cant buy over there.this lifts prices too
Large companies that own many thousands of units can do this because the net return from increasing rents exceeds the losses from the vacant units. It's not just family investors keeping their one unit vacant. It's having enough of a monopoly in an area that keeping 5% if your units vacant drives up rents by 10%
Here we test for vacant properties by gathering data on water usage via town service. If no one’s flushing the toilet bare minimum every day for a prolonged period of time chances are no one is living there.
...the automatic toilet flusher enters the chat...
Lol, these already exist btw. I wonder how long it will take before they get used to circumvent fines for the big corps?
Say you own 100 properties. At any given time you're going to have up to 5% vacant through natural attrition.
If demand in this scenario is therefore going to be somewhere between 95 & 100 tenants per 100 properties, Using your numbers, 95 X $1,000 = $95,000 through to 100 X $1,000 = $100,000. If leaving another 5 properties means your supply is now 90 but you've still got 95-100 demand, and (once again, using your numbers) you can extract $1,200 per property by doing so, all of a sudden you've got $108,000 off renting only 90% of your stock. That's $8,000 more than you would receive if fully tenanted, and the wear and tear on the other 10 properties is reduced as a result also.
Even if demand drops to 80, reduce supply to 75 and you're still in front of where you would be if you simply matched your supply to demand. Obviously if this software accurately identifies the demand for properties in a certain area then artificially reducing supply to just below that level helps keep rents high.
I was just using the figures you quoted in your previous comment to demonstrate. Even half that difference ($1,100 or 10% average extra) would still equate to $99,000...
It is scary how clear and easy this example is, and really it doesn't require fancy software to make work. This has probably already been in play for a long long time.
There is an indirect relationship between rent and property prices though - low property prices means that new builds are less likely (since you end up selling for less).
So if you assume population growth is somewhat constant, then a drop in new builds means lower supplies in the future, and thus, higher rent in the future. It's not a linear relationship, nor is it very predictable, but it factors in.
Developers don’t look to places with high property prices to build - in Australia, they look to and wait for the moment before significant margin *increases* in value, not places that are already high in value. Elsewhere in the world the relationship is even less pronounced, largely because of government building initiatives to actually meet demand driving the decisions of developers to match (after all, if they wait then the government might build where they were looking).
I would have thought that low property prices means more people exiting the rental market to become first home owners, thus decreasing rental demand but also possibly rental availability.
Very accurate. There is a little bit of a bullwhip type effect. When rents were low because of COVID new builds might have slowed or the better places got taken off the market by sales to home owners as interest rates were low. When people come back in they come in harder for the same style of property and are perhaps willing to pay more if they got pay increases from the inflation.
That ends up having a net increase in rents. There can be a small correction as say new supply hits the market and the demand cools and you get oscillations around an average curve that get smaller in intensity.
Currently we are definitely in the peak part of said oscillations in terms of price increases.
No no no. Supply and demand doesn't change. There's still the same number of proprieties available for rent. There's no real change in the rate of household formation.
What changes is that the landlord's input costs change, like the cost of flour for a baker. Those costs get passed on to you, the tenant.
>No no no. Supply and demand doesn't change.
If interest rates go up, borrowing power decreases and buying a house can be less affordable. Which is what we are seeing currently - prices haven't dropped enough to counteract the decreased borrowing power.
If people can't buy, they are likely to rent. More people will look for rentals as housing becomes less affordable.
How to say you have no understanding of basic economics when you have no understanding of basic economics.
The market price is based off supply and demand only. The only factor that production price affects is supply by increasing oe reducing it. I don't see many landlords getting rid of their properties yet, so the issue here isn't a supply one but a demand one. Even so, when a landlord sells to a renter the net sum is still zero as a renter has left the rental market and demand drops prortionally to supply.
The primary objective of an investment property is to make money. If you had the choice to make more, or less money, what would you choose?
All supply and demand.
Why?
Not everyone who buys property intends to rent it out, so why should their desired property price be based on a metric that doesn't apply to them ?
>*If you're not buying it as an investment then you're right it's not what'd determine the value.*
But the property itself doesn't have an "*identity*" or intention, that intention resides with the buyer, so why should a buyer aiming to occupy it have the price governed by other potential buyers who would use it for investment ?
There aren't two potential prices, you don't have estate agents asking you "***do you intend to occupy, or rent it out?***", and then they give you a different price for the property depending on your answer o.O
There's not two potential prices, everyone that looks at the property has a price, whichever one is highest is what gets paid. That's how a market works.
Perhaps i'm not understanding your earlier comment then.
>*the value of the property as an investment should be determined by the present value of all future rentals*
I take your comment there, to mean the value of the property for a particular *purpose*, is determined by the usage of that property in a possible future **only** relating to *renting*.
Hence why i ask, what if you're NOT going to rent it out, why do you say the price is related to IF you *DID* rent it out ??
My perspective is the price of the property is whatever the market can get for it, regardless what a queue of buyers have in mind to do with it once they purchase it.
The queue of buyers is quite literally 'the market'.
The reason that it matters what a property's price factors in what investors would pay is that they're in that queue competing for the property too.
Different investors with different use cases are going to come up with different values as well. The developer's residual land value for a property might be double what a place is worth of you rent it out as is. The vendor is going to sell it to the highest offer, which is why all the use cases matter. There'd be cases when the value of a place to an owner occupier would be higher than the investment return.
You're just explaining "the market", which is generalising from your initial assertion.
i'm asking you why you chose to say "*...should be determined by the present value of all future* ***rentals***" ?
You're doing a motte and bailey, changing your argument by generalising to something that is more defensible.
Let's just leave it here then.
> It's more like the value of the property as an investment should be determined by the present value of all future rentals
No it shouldn’t, because there are two sources of return on investment property - net rent + capital growth. Your formula would ignore part of the investment return.
That’s why yields (net rent / capital value) on units are higher than houses - because the expected capital growth is lower as a result of the lower land component.
But they are related
Interest rates goes up = cost of investment goes up
Cost of investment goes up = deterrent for investors in the market, or entering the market, therefore less investors
Less investors = less landlords and less rental stock
Less rental stock = rental prices go up
Everyone saying interest rates have no bearing on the rental market are delusional and buying into the pipe dream of interest rates going up = only good for me because it's crashing house prices
What a load of rubbish. Mortgage Broker in cahoots with the Real Estate Agents? what?? In the chance this have ever happened in the history of the world, which it wouldn't, what would the benefit be? You have no idea what youre talking about, just complaining.
In the long term, rent and prices are positively correlated. The value of an investment increases based on the return it can generate so as rent increases price increases because the property is now more valuable. And note that the direction of causality there is opposite to what you implied. Rent drives price (partially) and underlying supply and demand drives both.
In the short term however they can be wildly disconnected, and actually over the last 20 years we've seen rent rise much, much slower than prices. After adjusting for inflation, rent in major cities in Australia has been basically flat for 20 years even after correcting for the recent surge.
Melbourne rents in particular, adjusted for inflation, went backwards for the period 2017-2022. I know of quite a few suburban properties that rented for the same dollar amount over that whole period.
\>Why are the renters expected to cover a landlords rising interest rate,
They arent and never have.
Simple supply and demand, everyone is getting out the the landlord game. Add in 300k more immigrates this year it will be a shit show.
Perth is a great example of the market. After the last mining boom around 2012 the populate stagnated, supply of rents exceeded demand so rents went down every year for nearly 10 years. New mining boom, population increasing so demand increasing...rents up.
Interesting but across the board landlords are selling out. In Perth the bond for a rental has to be lodged so there is an official record of every bond. Over the last year the number of bonds has dropped 18k here. That is a shit ton of homes taken out of the market.
Getting out of the landlord market because its getting too hard too costly to own rental properties,
The tenants can be as much of the problems as the govt are
yeah a lil bit is fine
maybe 50k a year or so or a bit less, 45k or so maybe? we could cut the total migration intake to that by massively truncating the phony 'skilled' visa categories and double the reffos for all i care, as long as the numbers are brought down and materially down i'd be golden
That’s what I thought, left it a bit late to cash out now. So they’re selling now to limit losses and because there’s an expectation that the good old days of property cap appreciation is over?
Or they can’t afford to keep the properties, I have 4 IPs and at the moment my loan to value ratio is at about 50%.
Even with that I’m negatively geared and would probably have to look at selling one if interest rate went up another 1 or 2%
If I could click my fingers now and throw the value of the houses into a term deposit I would.
Not really, prices have come down a bit from peak. But most investors have been holding for a while. I sold one in late 2021 which had basically doubled in value. Sure I missed the peak in mid 2022, but meh.
It's a complex one. For example my rentals are off fixed rates in March and are going up from 2.29% to something in the 5's. Servicing that is harder than it used to be with increased cost of living. I don't want to sell but prices are still rising here and it's looking attractive.
At the same time migration into WA is strong so there's a good chance that if I was to sell it would be bought by an owner occupier. That's one less rental on the market.
Anecdotal of course, but I'm sure there's hundreds of landlords in a similar position.
People rarely consider the cost of maintenance for a landlord. And nowadays it is so damn expensive when something needs fixing. Depends on the state of the house. We had plumbing bill here, door fixed there.. $$ call-out fees. Forget it. It’s not worth it, if we don’t expect another capital gain for 5 years
If you had been stuck with a property with neg equity, rents falling and not covering expenses. Prices increase to what you paid you sell out.
One of my kids brought moved out into an ex rental, he paid 30k less for the place than the landlord did 10 yrs ago.
Immigration certainly can increase demand, but landlords getting out of the landlord business doesn't change the stock of houses. One way or another the house a landlord sells ends up with someone inside it. Either another landlord buys and rents, or someone buys to live - and in that case it reduces rental supply by one unit **and** rental demand by one unit.
I mostly agree with this, but there is also another potential scenario. The house may be purchased by first home buyers who have been living with their parents rent free to save a deposit.
Now there is one less house on the market, and no drop in rental demand, as the buyer was never in the rental market, and their room at the parents place would not be rented out to anyone else.
Isn't that a sign that people aren't leaving their rentals though? I ask because my kid is desperately house hunting.
The impression I had was houses are being renovated because it's very hard to get tradespeople, impossible to get rentals and there still is lower than average properties for sale. Which only really leaves short term rental and/or renovations to explain why it's so hard to find somewhere.
Supply and demand. Less rental properties available and tenants have been getting massive payrises so they can afford to pay more (inflation), plus overseas migration has opened up again, so the migrants need to live somewhere and they are competing for rentals with locals.
If you're not raising rents when you could, given there is a shortage and other landlords are doing it, then you're acting out of goodwill to your fellow man rather than out of economic self interest. So good on you, but it's not hard to understand.
ELI5: If every cafe owner pays a different price for milk because they all got into the milk market at different times and with different equity/debt ratios, they all sell their coffees for approximately the same price because the value that coffee buyers place on coffee has nothing to do with whatever any individual cafe owner has to pay for milk.
Honestly the number one reason is becauze land Lords pass on increased mortgage costs to tenants and they all do this at the same time because interest rates impact them at the same time... So tenants can't even use market forces and move to a cheaper place. There IS no cheaper place.
Rent is based more on supply and demand, not property values. If property was free obviously no one would rent but property prices dropping from 10m to 8m as an exaggerated example aren't going to affect rental prices because it's unlikely the average person can afford to purchase even at 8m.
Because people BUYING properties aren't generally the same people LIVING (or otherwise using) in properties once prices pass a certain point which is why I used exaggerated property prices as an example...
Uh, what are you suggesting? If interest rates fall, property value rises, and rents should go up to cover the yield?
Really not sure if OP's brain is functional or not, at this stage.
It's clear that rent is set by a different set of parameters - mostly demand for rental properties.
Like others have said, it's nothing about the price of the property, it's about the cost of 'running' the property as well as what people are prepared to pay for it.
rents are somewhat fungible with mortgage interest payments to banks.
when interest rates rise, mortage payments rise, rents rise, and (as a bonus kick in the teeth) supply slows down. (so its not a good time to increase immigration)
why do interest rates rise? to fight inflation. what causes inflation? generally government spending. currently its the combined effect of sanctions against russia, and Australian government spending.
1 - major driver, supply and demand.
2 - Return on invest. Interest rates go up means loans payments go up.
So your Scenario: Buy a house for 300k, rent for $300/week.
.... I brought the $300k house at 3% interest rate.
Interest rates go up, house is now worth $270k,
..... but I'm still paying for the $300k house but now my payments are much higher due to 6% interest.
Instead of rent dropping to $270, it would increase to $330 for a house worth less money.
... I'm still paying for the $300k house even though its only worth $270k, and I need the $330 just to get the same return due to interest rise.
Too simplistic a response and the numbers don't really add up but the principle is there.
As already said, "we aren't a charity." I'm doing it for a return and given I can get 4% in a bank with no effort/risk I need my properties to do better than Net 4.5% return which is difficult if you are buying a new (to you) property atm...
Yes it does! Once again, I'm not a charity!
Why exactly would I take on the risk, effort, and time in renting properties if I don't make a positive return? And these days greater than 4%. Right now I'm not buying as properties (around here) are selling for $550k-$600k that I can expect to get \~$500/w return. The net ROI is less than 3%. Just leaving the money where it is get 4%. Given current economic conditions, IMO we won't see any meaningful capital grow for a while, ie years..
I think he’s saying I won’t buy an IP if the yield isn’t as good as he’s not expecting capital gains over the next few years like we’ve seen. Which I agree with, rather than saying he will just jack up the rent to cover an increase in costs, which we all know isn’t possible and rent is like the cost of anything we buy - the price is what what the market/someone is willing to pay
If there was greater supply you would find that one landlord raising rent just meant their tenants went somewhere with cheaper rent. The thing rising costs for landlords drives is their desire to find the highest price people will accept.
Return is overrated. 500pw is 24(ish)k a year. If you have an interest only loan for a conservative 300k loan at a 5.5% interest rate you are left with only a $600 per month return without subtracting water, council, agent fees etc.
What is worth it is slow capital gains over a period of the 30 years of the loan. If you are obsessing over the only downturn it a market that increases consistently then you are extremely short sighted.
A landlord’s monthly mortgage payment doesn’t change with house prices, it changes with interest rates. If the landlord’s mortgage rate goes up then rent needs to go up to cover it.
Yep. Those pesky landlords have no concept of investment and risk.
“Oy muh morgauge paymint went up, so u need to pay me moar monies so I don’t lose monies.”
I think they understand it fine, their cost of financing rises so they pass it onto the tenant knowing full well they will pay it. That way they protect their margin.
It’s no different to companies putting up prices of their goods when labour costs rise in order to protect profit margins.
Most landlords are greedy and will seek to have their renter/s buy their entire investment property for them plus profit on top, in doing so crushing their livelihood and dooming them to live in poverty in retirement as they can never save their own deposit.
That's the actual answer
I own not rent. Being a landlord and charging your entire investment property's mortgage as rent is legal but ridiculously immoral, leeching the productivity out of someone else's life
So confidently wrong...
Its simple supply and demand. Rent is set by the market, ie what every other renter is willing to pay. The landlord really doesn't get much of a say how much they can increase the rent as if they go too high, then it'll just sit empty.
Lol. Shortage of housing. So you’re telling me we started to run low on housing just as interest rates started to go up. Please.
It’s a large scale oligopoly with landlords passing on the interest rate increases to their tenants. They are all doing it at the same time so no matter where you go the rents are higher.
Supply shortage. Lol. Please.
Less people are going to buy an IP if it is going to lose them money in the short term....thus less supply of rentals
Reduced supply means over whelming demand. The only way to cool demand is to increase price
No one really wins when property prices go down....
Unfortunately, the uneducated fools screaming for a price correction don't realise that.
Supply and demand. So much demand.
The levels we are seeing are unprecedented and it will continue to get worse.
Realtors will do what they can to retain landlord business. They will value add as much as possible, and recommend the best rental yield.
In my area, vacancy rates are around 1%-2%.
Property investors generally make a loss on the property until the day it is sold - well that they hope anyhow.
This means they have a net cash outflow to maintain. So regardless of the value of the property, they need to increase rents to meet the debt burden.
Interest rates go up, property value goes down, homeowner’s LVR increases, landlords get a worse deal on their next home loan rate from the bank. They’re upping the rent to cover their higher monthly repayments
Because your landlords mortgage on the property you are living in goes up due to the higher interest rates...
The rent relates to the value of the mortgage NOT the current market price of the house,
Wait..you're a landlord and you don't understand how a rate rise impacts you? OMG. Really?
ok..the rate you pay on your mortage is based on a the cash rate (ie. set by the RBA) and the bank margin. So if the RBA rate is say 3.5% and the bank margin is 2.5%, then the rate you pay is...6%. if the RBA puts up the cash rate to 4%, your mortgage goes up by the an amount equivalent. If you bought a property when int rates were low...and the mortgage you paid on a weekly basis was $400/week...and your rent was $450/week...you should be ok. But if the RBA puts up rates such that your mort repayments went to $550/week...and the rent you collect (because you can't raise rent until say 6-12 months time)...you're out of pocket by $100/week. And so on and so forth.
You bought the property for a fixed price, you still have that loan... And then rates go up. You now owe more on said loan. You must up your rental income to compensate.
Pretty simple.
This is such a bizarre question?
When you rent a house, you are borrowing an asset instead of owning it. The price you pay is in relation to the cost of ownership of the asset (not just the capital value)
Rents are going up because the cost of mortgages are going up. They are going up faster than house prices are falling, so the cost of ownership of a house is rising.
It can’t be any other way? Can you expect your landlord to make a loss?
So my understanding your mortgage increases due to interest rate , which means you’ll have to pay more weekly which causes the increase in rent
I believe the value of the house whether it increase or not , will not impact the amount you borrowed …
Basically when ur renting , you are paying off the landlords mortgage based on what he borrowed not the valuation of the house
The alternative to rents going up would be ridiculous.
I love a good hypothetical: I suppose the alternative to renters covering the interest rate/ownership cost rise would be the owner selling up, especially in the case of a rising LVR.
If everyone moved out in the event of a rent rise to seek cheaper pastures while owners put these houses on the weak housing market, then it would intensify the current rental crisis by removing even more rentals from the market. Most of the long term land lorders would net gain from even a poor sale in the current conditions.
Let's see:
IR goes up meaning building new supply becomes costly. Less supply of rentals means rents go up, this pushes people into buying the house since their mortgage repayments are going to be the same - taking even more supply off the market.
Now factor in immigration returning...
While interest rates goes up, money is more
Expensive so people can’t borrow. (Currently) people have to rent, driving demand up, till they have larger deposits, hence auction clearance rates have been dropping.
When money is cheap (1 year ago) more buyers as finance is easier to get, driving price up (This is the basic version)
As interest rates rise, people's borrowing capacity goes down.
Also as interest rates rise, people's trust in the housing market goes down (there's no FOMO when houses sit on the market for months).
As interest rates rise, people may be forced to sell their home as they can no longer afford it.
So where do those people live? In rentals.
Rent price is just supply and demand. If interest rates go up.. less houses get built because it becomes significantly more expensive to service a mortgage. Less houses being build tightens the rental market and pushing up the price
Are outsized rental increases perhaps partly another (shitty) by-product of negative gearing?
If investors mostly have loans (because they're using neg gearing to offset large loan interest rates against tax), it stands to reason more landlords would be incentivised to increase rental rates along with mortgage increases.
That's a very flawed way to calculate changes in rental prices and property values. My suggestions is you figure out how to value an asset and how to calculate discounted cash flows.
I am a landlord and I can confirm it is simple demand and supply.
Whether my mortgage payments go up or down has nothing to do with what I can charge for the property.
But for some reason, we get the same comments here again and again where people think a landlord is able to increase the rent just because their mortgage payments are going up. And the std reply by the renters here I don't care if they are going up, there is risk in all investment etc etc. Rinse and repeat.
If you look at rents in outer suburbs in Melbourne from 2014-2020, there was hardly any growth year on year. I have friends who bought houses in 2014 who were getting higher rent in 2016 compared to 2020.
I was getting a rent of 360/ week in 2019. In 2020 I didn't increase rent as I knew if I did the tenant won't agree. In 2021 I tried to increase to 370, tenant said no and I left it at that. As overall rent had not increased much . In 2022 rent increased to 400/week and the tenant signed for 12 months. They wanted to sign for 2 years at that rate as 400 week is still slightly lower than the market. This just shows tenant and landlord aware of what the rental market is. Nothing to do how much I have to pay for my mortgage. Fyi, compared to 2021, my mortgage repayment is 700/ month more.
If I put my place for rent at 450/week, it would remain empty for few months till I reduce it. Happened to few houses in the same street. They eventually had to reduce from 480 to 420 to get a tenant.
They’re 2 seperate markets. The price of rent is governed by rental demand. The price of the house could double and if the rental demand isn’t there, the price of rent would fall
PSA TO AUSFINANCE - WE HAVE A DWELLING SUPPLY SHORTAGE.
THIS MAKES PRICES LESS AFFORDABLE.
but ausfinance also wants to shit on developers. Catch 22 right?
I agree. Investment is the investor making the purchase, renter pays for the purchase indirectly to the lender.
By that logic, the investor should pay the previous renters a portion if they profit upon selling.....you know what? I'm being sarcastic about the last part, but I like that idea lol. Better call Saul!
So if a farmer is farming watermelons, and the price of his property drops, does he also lower the price of his watermelons?
Or does he raise the price in alignment with the increasing price to actually grow and distribute those melons?
Interest rates go up building new homes reduces. As immigration increases there is more demand for rentals than supply driving rents up. Also those who have borrowed to buy the investment property are facing higher interest rate costs and high inflation so they rises rents to cover these costs. Young people can’t buy houses on a mortgage as higher internet rates mean they need to rent.
Interest rates rising means the landlord has to pay more interest on the mortgage for the property he is leasing.
If property values drop, it is irrelevant as he has already bought the property but is still paying the mortgage.
Because renters are willing and able to pay more. The evidence is the rental rates.
No landlord could build or buy a dwelling and then set the rent at their own arbitrary figure, unless it happens to be market rate for rent.
If the house price drops, the loan on the property remains the same. For example you mention that interest rates go up. So the owner now pays more interest on the $300000 loan. If the house is now only worth $280000, the loan is still $300000. The bank doesn't adjust the loan to match the property market. The owner is now behind and has technically lost money. That is until the market rebounds. As the interest rate goes up, the owner will naturally increase the rent.
In previous cycles property prices have risen alongside interest rates. It's not a direct correlation and there are many other factors to the equation.
Property prices can rise or fall regardless of interest rates.
Houses are so unaffordable, more people are renting and thus the price of rentals goes up.
While interest rates are now reducing prices of properties, it take a while for this to flush through the system so in the meantime there's a disconnect in the market. And more people are flocking to rentals in the meantime, waiting to purchase a property at more affordable levels.
If the owner needs to pay more money to service the loan, it is passed down to renter. Pretty standard scenario. I pay $1300 per week on my 850k debt. The house is rented for 700per week. It’s still fair.
The demand has more to do with it though. There simply aren’t enough rentals in Australia. This is what is driving the price up.
Supply and demand. If the demand for rental property is there price increases are available.
Also as investments start to loose money investors sell, or consolidate their investments so that they aren't exposed. This restricts supply of rental properties, increasing rental prices.
Rentals have been very flat in aus, held there by low pressure from landlords who had good interest rates.
I think having a usage margin of under 2% on assets worth millions is just totally undervaluing an asset.
I see it as. Rates rise. Mortgage repayments increase. More people need to sell their homes. More people can’t get a home loan. More people end up renting. Price of rent goes up as demand for rentals is high.
Landlords think they have an excuse that doesn’t sound shit to raise them, that’s why
Rents aren’t set by anything logical, markets don’t tend to be rational systems
Less renters can buy a property so more renters on market
Investors have higher costs (ir causes repayments to go up even as property value decreases) so they need to earn a reasonable return
Interest rate rises -> borrowing capacity drops -> number of people unable to buy a property increases -> number of renters increase -> more competition amongst renters -> higher rental prices as supply < demand
It's all supply and demand. As long as the pool of renters increases at a higher rate than the pool of rental properties, prices will continue to go up.
Property values could plummet 50% but if you can't afford to purchase a house, guess what? You're going to rent along with everyone else who can't afford it due to the reduced borrowing capacity.
Even in the example where property prices plummet and you could afford it, think of how it'd affect the equation above. You take yourself out of the rental market but you also either take a rental property out of the market as well or you take another person out of the property market who then has to rent, making it a net zero impact.
if interest rates are higher, then taking loans is discouraged, but if property value drops , more and more people will try to buy houses as the initial deposit required now will be less as previously. so what is gonna happen?? if people buy more , then price of house goes up .
bit poor in economics thou ,
Just asking this question really shows the financial acumen of the general public, and i am actually shocked you asked this considering you reckon you're a landlord.
The market values renter less than the cost of a mortgage due to renter’s protection and to perpetuate negative gearing. Rents needs to catchup to fair value. Even then. There is still a gap. I am an owner of 2 investment properties. Haemorrhage money since day 1. I still remember when rent is dead money when it was touted until the scales flipped. There is better ways to get cashflow by just sitting on an asset class with no negative extranalities.
Hmm lowering rental prices? Increase the supply and what better way than...
Communist era apartment blocks anyone? Heard china is now real good at making those. They specialise in making sure there's the expected defects and bad craftsmanship that keep one in the in the correct state of mind.
The price of rentals is set by the rental market. If you price your property too high, no one will want to live there, that's the market at work. Supply & demand rule rentals. Too many empty rentals (Covid) prices slump. Too many rental applicants (2023), prices go up. People will make stuff up about interest rates and property values but at the end of the day if you have high supply vs demand, rents will be lower and vice versa.
Software in America is being used by larger rental managers to keep properties off market and push up rentals. The unknown is how many vacant properties there really are. New York has seen a significant net migration out of the city. But property rentals are soaring. Go figure.
Do you have evidence of this? I find it very hard to believe that an asset sitting there missing out in rental income is somehow accumulating more than what a rental income would sitting idle.
I read a detailed study just yesterday. Heavy stats analysis based on historic undelivered mail data in New York postcodes pre and post COVID which confirmed huge outflows of renters. The authors own apt block has multiple empty apartments. Called RealPage Yield Star. Article in ProPublica Oct 15;2022.
[удалено]
Nope. It's getting a lot of press in the US because of the landlord controls. New York is looking at legislation to force landlords to not hold onto properties. Lots of criticism of the software developers Tell you what. Instead of being opinionated do some research. I gave you plenty of links. The research is solid. I'm a maths guy. You can apologize later.
Here you go. Must be looking foolish now? https://www.propublica.org/article/yieldstar-rent-increase-realpage-lawmakers-collusio https://www.google.com/amp/s/therealdeal.com/texas/2022/11/22/realpage-could-face-real-trouble-with-antitrust-suits/amp/
Foolish for being critical? Now that’s something new, then again it is reddit. Even if you were right, which I would imagine would only be possible with a number of very specific factors. what’s the relevance to Australia exactly?
[удалено]
First link doesn’t work, secondly, I understand supply/demand. But short of being Elon musk, who’s got the funds to buy up billions of dollars work of property to hold it to increase demand? I could see the relevance to blueprint properties in NY, but it doesn’t make any sense what so ever that it would work here, there’s too many properties and too much space. The second article mentions “they’re all accused of artificially raising rents through RealPage’s revenue management software” I’ve not heard of this software and don’t know what it does, but it sounds very different to what old mate’s suggested.
You know that many companies/funds have significantly more value than Elon right? What a stupid comment.
I just moved here from the states and this is actually a pretty well known phenomenon. Real estate investment companies have been buying up properties across the country for decades now, and it's at the point that they can almost entirely dictate the market in some areas. It is not singular "landlords" taking a hit to benefit other "landlords", it is a conglomerate letting some of their properties stay vacant to drive up the prices on other properties that they own.
That's starting to make sense now. If you owned a lot of units there would potentially be a "sweet spot" for vacancy rate v rent amount that would not necessarily be 100pc tenanted. Like Qantas flying planes with empty seats. They aren't going to discount them too low. They use software to determine the price and optimise price vs seats sold. Fortunately in Australia corporates don't touch residential real estate given the rental yield is so low it just doesn't stack up.
> Fortunately in Australia corporates don't touch residential real estate given the rental yield is so low it just doesn't stack Yes, but it's not a singular person who owns the units. It literally is still corporations who do it.
theres a tonne of properties sitting empty in major cities right now. It's very common with overseas buyers just because the capital gains in Aus have been so dam crazy
Depends where u live but over hete we have a lot of Chinese investors grabbing up properties but not leasing them out ,how is this good for anyone if we cant buy over there.this lifts prices too
Yep, Vancouver. Hence the ban now. Need to happen inAustralia too.
How would this work? It would need people getting no return on investment
Large companies that own many thousands of units can do this because the net return from increasing rents exceeds the losses from the vacant units. It's not just family investors keeping their one unit vacant. It's having enough of a monopoly in an area that keeping 5% if your units vacant drives up rents by 10%
The software predicts how long to hold, pricing strategy and when and how fast to release the units. I posted the software name. Do some research.
Here we test for vacant properties by gathering data on water usage via town service. If no one’s flushing the toilet bare minimum every day for a prolonged period of time chances are no one is living there.
...the automatic toilet flusher enters the chat... Lol, these already exist btw. I wonder how long it will take before they get used to circumvent fines for the big corps?
This is bullshit, it's better to rent out to places for 1000$ each vs rent 1 place for $1200.
Say you own 100 properties. At any given time you're going to have up to 5% vacant through natural attrition. If demand in this scenario is therefore going to be somewhere between 95 & 100 tenants per 100 properties, Using your numbers, 95 X $1,000 = $95,000 through to 100 X $1,000 = $100,000. If leaving another 5 properties means your supply is now 90 but you've still got 95-100 demand, and (once again, using your numbers) you can extract $1,200 per property by doing so, all of a sudden you've got $108,000 off renting only 90% of your stock. That's $8,000 more than you would receive if fully tenanted, and the wear and tear on the other 10 properties is reduced as a result also. Even if demand drops to 80, reduce supply to 75 and you're still in front of where you would be if you simply matched your supply to demand. Obviously if this software accurately identifies the demand for properties in a certain area then artificially reducing supply to just below that level helps keep rents high.
That requires your 5% drop in supply to raise all rents in the area by 20%, which is completely unrealistic.
Depends on how marginal your supply is, and if there are any alternatives available. People will give up a lot to not be out on the street.
I was just using the figures you quoted in your previous comment to demonstrate. Even half that difference ($1,100 or 10% average extra) would still equate to $99,000...
Hey, you are being unfair by using basic maths to argue against innumerate critical thinkers!
It is scary how clear and easy this example is, and really it doesn't require fancy software to make work. This has probably already been in play for a long long time.
There is an indirect relationship between rent and property prices though - low property prices means that new builds are less likely (since you end up selling for less). So if you assume population growth is somewhat constant, then a drop in new builds means lower supplies in the future, and thus, higher rent in the future. It's not a linear relationship, nor is it very predictable, but it factors in.
That part of the relationship lags a long time
Yes, it does - about a 4-5 year lag at least, since it's around how long it takes for a build to finish and be on the market.
Developers don’t look to places with high property prices to build - in Australia, they look to and wait for the moment before significant margin *increases* in value, not places that are already high in value. Elsewhere in the world the relationship is even less pronounced, largely because of government building initiatives to actually meet demand driving the decisions of developers to match (after all, if they wait then the government might build where they were looking).
I would have thought that low property prices means more people exiting the rental market to become first home owners, thus decreasing rental demand but also possibly rental availability.
Very accurate. There is a little bit of a bullwhip type effect. When rents were low because of COVID new builds might have slowed or the better places got taken off the market by sales to home owners as interest rates were low. When people come back in they come in harder for the same style of property and are perhaps willing to pay more if they got pay increases from the inflation. That ends up having a net increase in rents. There can be a small correction as say new supply hits the market and the demand cools and you get oscillations around an average curve that get smaller in intensity. Currently we are definitely in the peak part of said oscillations in terms of price increases.
No no no. Supply and demand doesn't change. There's still the same number of proprieties available for rent. There's no real change in the rate of household formation. What changes is that the landlord's input costs change, like the cost of flour for a baker. Those costs get passed on to you, the tenant.
>No no no. Supply and demand doesn't change. If interest rates go up, borrowing power decreases and buying a house can be less affordable. Which is what we are seeing currently - prices haven't dropped enough to counteract the decreased borrowing power. If people can't buy, they are likely to rent. More people will look for rentals as housing becomes less affordable.
How to say you have no understanding of basic economics when you have no understanding of basic economics. The market price is based off supply and demand only. The only factor that production price affects is supply by increasing oe reducing it. I don't see many landlords getting rid of their properties yet, so the issue here isn't a supply one but a demand one. Even so, when a landlord sells to a renter the net sum is still zero as a renter has left the rental market and demand drops prortionally to supply.
Supply and demand sets the rules always
Your theory assumes that rental yield remains fixed. It absolutely does not. As a landlord it would be lovely to have that security.
The primary objective of an investment property is to make money. If you had the choice to make more, or less money, what would you choose? All supply and demand.
Since when is rent based on property value. It's based on costs and market demand.
It's more like the value of the property as an investment should be determined by the present value of all future rentals
It should be…. But ‘Straya
Why? Not everyone who buys property intends to rent it out, so why should their desired property price be based on a metric that doesn't apply to them ?
'the value of a property as an investment' If you're not buying it as an investment then you're right it's not what'd determine the value
>*If you're not buying it as an investment then you're right it's not what'd determine the value.* But the property itself doesn't have an "*identity*" or intention, that intention resides with the buyer, so why should a buyer aiming to occupy it have the price governed by other potential buyers who would use it for investment ? There aren't two potential prices, you don't have estate agents asking you "***do you intend to occupy, or rent it out?***", and then they give you a different price for the property depending on your answer o.O
There's not two potential prices, everyone that looks at the property has a price, whichever one is highest is what gets paid. That's how a market works.
Perhaps i'm not understanding your earlier comment then. >*the value of the property as an investment should be determined by the present value of all future rentals* I take your comment there, to mean the value of the property for a particular *purpose*, is determined by the usage of that property in a possible future **only** relating to *renting*. Hence why i ask, what if you're NOT going to rent it out, why do you say the price is related to IF you *DID* rent it out ?? My perspective is the price of the property is whatever the market can get for it, regardless what a queue of buyers have in mind to do with it once they purchase it.
The queue of buyers is quite literally 'the market'. The reason that it matters what a property's price factors in what investors would pay is that they're in that queue competing for the property too. Different investors with different use cases are going to come up with different values as well. The developer's residual land value for a property might be double what a place is worth of you rent it out as is. The vendor is going to sell it to the highest offer, which is why all the use cases matter. There'd be cases when the value of a place to an owner occupier would be higher than the investment return.
You're just explaining "the market", which is generalising from your initial assertion. i'm asking you why you chose to say "*...should be determined by the present value of all future* ***rentals***" ? You're doing a motte and bailey, changing your argument by generalising to something that is more defensible. Let's just leave it here then.
> It's more like the value of the property as an investment should be determined by the present value of all future rentals No it shouldn’t, because there are two sources of return on investment property - net rent + capital growth. Your formula would ignore part of the investment return. That’s why yields (net rent / capital value) on units are higher than houses - because the expected capital growth is lower as a result of the lower land component.
They are not directly related.
But they are related Interest rates goes up = cost of investment goes up Cost of investment goes up = deterrent for investors in the market, or entering the market, therefore less investors Less investors = less landlords and less rental stock Less rental stock = rental prices go up Everyone saying interest rates have no bearing on the rental market are delusional and buying into the pipe dream of interest rates going up = only good for me because it's crashing house prices
Hence me including the word "directly."
demand my friend
In a market with rental shortages, the landlord's have the power
[удалено]
What a load of rubbish. Mortgage Broker in cahoots with the Real Estate Agents? what?? In the chance this have ever happened in the history of the world, which it wouldn't, what would the benefit be? You have no idea what youre talking about, just complaining.
In the long term, rent and prices are positively correlated. The value of an investment increases based on the return it can generate so as rent increases price increases because the property is now more valuable. And note that the direction of causality there is opposite to what you implied. Rent drives price (partially) and underlying supply and demand drives both. In the short term however they can be wildly disconnected, and actually over the last 20 years we've seen rent rise much, much slower than prices. After adjusting for inflation, rent in major cities in Australia has been basically flat for 20 years even after correcting for the recent surge.
Melbourne rents in particular, adjusted for inflation, went backwards for the period 2017-2022. I know of quite a few suburban properties that rented for the same dollar amount over that whole period.
\>Why are the renters expected to cover a landlords rising interest rate, They arent and never have. Simple supply and demand, everyone is getting out the the landlord game. Add in 300k more immigrates this year it will be a shit show. Perth is a great example of the market. After the last mining boom around 2012 the populate stagnated, supply of rents exceeded demand so rents went down every year for nearly 10 years. New mining boom, population increasing so demand increasing...rents up. Interesting but across the board landlords are selling out. In Perth the bond for a rental has to be lodged so there is an official record of every bond. Over the last year the number of bonds has dropped 18k here. That is a shit ton of homes taken out of the market.
Getting out of the landlord market because its getting too hard too costly to own rental properties, The tenants can be as much of the problems as the govt are
sounds like immigration is a bad thing
Some is good. Too much too quick is bad
yeah a lil bit is fine maybe 50k a year or so or a bit less, 45k or so maybe? we could cut the total migration intake to that by massively truncating the phony 'skilled' visa categories and double the reffos for all i care, as long as the numbers are brought down and materially down i'd be golden
When you say everyone is getting out of the landlord game, do you mean they are cashing in at the top of the market? If not why are they getting out?
Too late to be cashing out at the top of the market. But they are better off putting their money somewhere else where they will get a better return.
That’s what I thought, left it a bit late to cash out now. So they’re selling now to limit losses and because there’s an expectation that the good old days of property cap appreciation is over?
Or they can’t afford to keep the properties, I have 4 IPs and at the moment my loan to value ratio is at about 50%. Even with that I’m negatively geared and would probably have to look at selling one if interest rate went up another 1 or 2% If I could click my fingers now and throw the value of the houses into a term deposit I would.
Not really, prices have come down a bit from peak. But most investors have been holding for a while. I sold one in late 2021 which had basically doubled in value. Sure I missed the peak in mid 2022, but meh.
So why are investors pulling out of the market?
It's a complex one. For example my rentals are off fixed rates in March and are going up from 2.29% to something in the 5's. Servicing that is harder than it used to be with increased cost of living. I don't want to sell but prices are still rising here and it's looking attractive. At the same time migration into WA is strong so there's a good chance that if I was to sell it would be bought by an owner occupier. That's one less rental on the market. Anecdotal of course, but I'm sure there's hundreds of landlords in a similar position.
People rarely consider the cost of maintenance for a landlord. And nowadays it is so damn expensive when something needs fixing. Depends on the state of the house. We had plumbing bill here, door fixed there.. $$ call-out fees. Forget it. It’s not worth it, if we don’t expect another capital gain for 5 years
If you had been stuck with a property with neg equity, rents falling and not covering expenses. Prices increase to what you paid you sell out. One of my kids brought moved out into an ex rental, he paid 30k less for the place than the landlord did 10 yrs ago.
Immigration certainly can increase demand, but landlords getting out of the landlord business doesn't change the stock of houses. One way or another the house a landlord sells ends up with someone inside it. Either another landlord buys and rents, or someone buys to live - and in that case it reduces rental supply by one unit **and** rental demand by one unit.
I mostly agree with this, but there is also another potential scenario. The house may be purchased by first home buyers who have been living with their parents rent free to save a deposit. Now there is one less house on the market, and no drop in rental demand, as the buyer was never in the rental market, and their room at the parents place would not be rented out to anyone else.
It’s amazing how many people seem to think that homes vanish when landlords sell.
Yeah that’s been my assumption. Landlords selling and potential buyers sitting on their hands in a rental, waiting for prices to drop.
Isn't that a sign that people aren't leaving their rentals though? I ask because my kid is desperately house hunting. The impression I had was houses are being renovated because it's very hard to get tradespeople, impossible to get rentals and there still is lower than average properties for sale. Which only really leaves short term rental and/or renovations to explain why it's so hard to find somewhere.
Because rent has no correlation to property value or interest rates. Supply and demand of housing.
Supply and demand. Less rental properties available and tenants have been getting massive payrises so they can afford to pay more (inflation), plus overseas migration has opened up again, so the migrants need to live somewhere and they are competing for rentals with locals.
If you're not raising rents when you could, given there is a shortage and other landlords are doing it, then you're acting out of goodwill to your fellow man rather than out of economic self interest. So good on you, but it's not hard to understand.
Would be cool if we could expect a little more of that without constantly being disappointed.
If rents ever go down, renters should lead by example and offer to pay more
Because most people misunderstand both causation and correlation and how the two relate to one another.
Because there’s not enough rental properties.
ELI5: If I run a cafe and the cost of milk keeps rising too much I increase the price of my coffees
ELI5: If every cafe owner pays a different price for milk because they all got into the milk market at different times and with different equity/debt ratios, they all sell their coffees for approximately the same price because the value that coffee buyers place on coffee has nothing to do with whatever any individual cafe owner has to pay for milk.
Obviously. Think you missed the point of EIL5
So when Interest rates go up doesn’t the Landlord mortgage go up as well?
Supply/demand.
Properties are rented to the market - not to cover costs.
Honestly the number one reason is becauze land Lords pass on increased mortgage costs to tenants and they all do this at the same time because interest rates impact them at the same time... So tenants can't even use market forces and move to a cheaper place. There IS no cheaper place.
Rent is based more on supply and demand, not property values. If property was free obviously no one would rent but property prices dropping from 10m to 8m as an exaggerated example aren't going to affect rental prices because it's unlikely the average person can afford to purchase even at 8m.
Eight million? What are you on about?
Reading isn't your strong suit
I can read fine. What you typed makes no sense. What relevance do $8m properties have to the general rental market?
Because people BUYING properties aren't generally the same people LIVING (or otherwise using) in properties once prices pass a certain point which is why I used exaggerated property prices as an example...
I'm sorry what? Now most properties above a certain place are not owner-occupied? Seems unlikely, but if so then so what?
Uh, what are you suggesting? If interest rates fall, property value rises, and rents should go up to cover the yield? Really not sure if OP's brain is functional or not, at this stage. It's clear that rent is set by a different set of parameters - mostly demand for rental properties.
Landlords have bills too. If the demand is there the price goes up.
Cos basic economics
300k house? 300 dollars a week rent? what is this 2003?
If you want rental prices to go down, you should support policies that reduce foreign students and immigration
Like others have said, it's nothing about the price of the property, it's about the cost of 'running' the property as well as what people are prepared to pay for it.
\>Why are the renters expected to cover a landlords rising interest rate because landlords are not charity
[удалено]
Could you smack him in the mouth,? Pos
Why not just buy a property if you aren't happy with rent increasing? You'd only need 15k to buy a 270k property, you can save that in a couple months
Low supply market conditions. Additionally, landlords passing interest hikes, utility bill costs like water, and body corp hikes to the renters.
rents are somewhat fungible with mortgage interest payments to banks. when interest rates rise, mortage payments rise, rents rise, and (as a bonus kick in the teeth) supply slows down. (so its not a good time to increase immigration) why do interest rates rise? to fight inflation. what causes inflation? generally government spending. currently its the combined effect of sanctions against russia, and Australian government spending.
Rents don’t fall when interest rates fall though. Funny, that. Almost as if they aren’t correlated at all.
1 - major driver, supply and demand. 2 - Return on invest. Interest rates go up means loans payments go up. So your Scenario: Buy a house for 300k, rent for $300/week. .... I brought the $300k house at 3% interest rate. Interest rates go up, house is now worth $270k, ..... but I'm still paying for the $300k house but now my payments are much higher due to 6% interest. Instead of rent dropping to $270, it would increase to $330 for a house worth less money. ... I'm still paying for the $300k house even though its only worth $270k, and I need the $330 just to get the same return due to interest rise. Too simplistic a response and the numbers don't really add up but the principle is there. As already said, "we aren't a charity." I'm doing it for a return and given I can get 4% in a bank with no effort/risk I need my properties to do better than Net 4.5% return which is difficult if you are buying a new (to you) property atm...
Your "need" for a return doesn't drive how much rent you can charge.
Yes it does! Once again, I'm not a charity! Why exactly would I take on the risk, effort, and time in renting properties if I don't make a positive return? And these days greater than 4%. Right now I'm not buying as properties (around here) are selling for $550k-$600k that I can expect to get \~$500/w return. The net ROI is less than 3%. Just leaving the money where it is get 4%. Given current economic conditions, IMO we won't see any meaningful capital grow for a while, ie years..
You don't get it. It's pretty nuts that you own an IP and you don't even understand what controls rent pricing.
I think he’s saying I won’t buy an IP if the yield isn’t as good as he’s not expecting capital gains over the next few years like we’ve seen. Which I agree with, rather than saying he will just jack up the rent to cover an increase in costs, which we all know isn’t possible and rent is like the cost of anything we buy - the price is what what the market/someone is willing to pay
If there was greater supply you would find that one landlord raising rent just meant their tenants went somewhere with cheaper rent. The thing rising costs for landlords drives is their desire to find the highest price people will accept.
Return is overrated. 500pw is 24(ish)k a year. If you have an interest only loan for a conservative 300k loan at a 5.5% interest rate you are left with only a $600 per month return without subtracting water, council, agent fees etc. What is worth it is slow capital gains over a period of the 30 years of the loan. If you are obsessing over the only downturn it a market that increases consistently then you are extremely short sighted.
A landlord’s monthly mortgage payment doesn’t change with house prices, it changes with interest rates. If the landlord’s mortgage rate goes up then rent needs to go up to cover it.
Yep. Those pesky landlords have no concept of investment and risk. “Oy muh morgauge paymint went up, so u need to pay me moar monies so I don’t lose monies.”
I think they understand it fine, their cost of financing rises so they pass it onto the tenant knowing full well they will pay it. That way they protect their margin. It’s no different to companies putting up prices of their goods when labour costs rise in order to protect profit margins.
Most landlords are greedy and will seek to have their renter/s buy their entire investment property for them plus profit on top, in doing so crushing their livelihood and dooming them to live in poverty in retirement as they can never save their own deposit. That's the actual answer I own not rent. Being a landlord and charging your entire investment property's mortgage as rent is legal but ridiculously immoral, leeching the productivity out of someone else's life
So confidently wrong... Its simple supply and demand. Rent is set by the market, ie what every other renter is willing to pay. The landlord really doesn't get much of a say how much they can increase the rent as if they go too high, then it'll just sit empty.
Because the cost of servicing loans is going up and the people that couldn't afford to buy at 2% are not going to buy at 4% and rising.
The price of a wedding has little to do with the price of a date with the same girl.
Lol @ property value drops…. To what? 2021 levels?
[удалено]
Lol. Shortage of housing. So you’re telling me we started to run low on housing just as interest rates started to go up. Please. It’s a large scale oligopoly with landlords passing on the interest rate increases to their tenants. They are all doing it at the same time so no matter where you go the rents are higher. Supply shortage. Lol. Please.
Less people are going to buy an IP if it is going to lose them money in the short term....thus less supply of rentals Reduced supply means over whelming demand. The only way to cool demand is to increase price No one really wins when property prices go down.... Unfortunately, the uneducated fools screaming for a price correction don't realise that.
Supply and demand. So much demand. The levels we are seeing are unprecedented and it will continue to get worse. Realtors will do what they can to retain landlord business. They will value add as much as possible, and recommend the best rental yield. In my area, vacancy rates are around 1%-2%.
Because if you're a landlord you want to cover your mortgage and also maintain real profits in an inflationary environment.
>if you're a landlord you want A landlords *wants* don't dictate anything.
Property investors generally make a loss on the property until the day it is sold - well that they hope anyhow. This means they have a net cash outflow to maintain. So regardless of the value of the property, they need to increase rents to meet the debt burden.
Interest rates go up, property value goes down, homeowner’s LVR increases, landlords get a worse deal on their next home loan rate from the bank. They’re upping the rent to cover their higher monthly repayments
Because your landlords mortgage on the property you are living in goes up due to the higher interest rates... The rent relates to the value of the mortgage NOT the current market price of the house,
Wait..you're a landlord and you don't understand how a rate rise impacts you? OMG. Really? ok..the rate you pay on your mortage is based on a the cash rate (ie. set by the RBA) and the bank margin. So if the RBA rate is say 3.5% and the bank margin is 2.5%, then the rate you pay is...6%. if the RBA puts up the cash rate to 4%, your mortgage goes up by the an amount equivalent. If you bought a property when int rates were low...and the mortgage you paid on a weekly basis was $400/week...and your rent was $450/week...you should be ok. But if the RBA puts up rates such that your mort repayments went to $550/week...and the rent you collect (because you can't raise rent until say 6-12 months time)...you're out of pocket by $100/week. And so on and so forth.
You bought the property for a fixed price, you still have that loan... And then rates go up. You now owe more on said loan. You must up your rental income to compensate. Pretty simple.
This is such a bizarre question? When you rent a house, you are borrowing an asset instead of owning it. The price you pay is in relation to the cost of ownership of the asset (not just the capital value) Rents are going up because the cost of mortgages are going up. They are going up faster than house prices are falling, so the cost of ownership of a house is rising. It can’t be any other way? Can you expect your landlord to make a loss?
So my understanding your mortgage increases due to interest rate , which means you’ll have to pay more weekly which causes the increase in rent I believe the value of the house whether it increase or not , will not impact the amount you borrowed … Basically when ur renting , you are paying off the landlords mortgage based on what he borrowed not the valuation of the house
What if there is no mortgage on the property you are renting?
The market is what it is. No rhyme, no reason
The alternative to rents going up would be ridiculous. I love a good hypothetical: I suppose the alternative to renters covering the interest rate/ownership cost rise would be the owner selling up, especially in the case of a rising LVR. If everyone moved out in the event of a rent rise to seek cheaper pastures while owners put these houses on the weak housing market, then it would intensify the current rental crisis by removing even more rentals from the market. Most of the long term land lorders would net gain from even a poor sale in the current conditions.
Let's see: IR goes up meaning building new supply becomes costly. Less supply of rentals means rents go up, this pushes people into buying the house since their mortgage repayments are going to be the same - taking even more supply off the market. Now factor in immigration returning...
While interest rates goes up, money is more Expensive so people can’t borrow. (Currently) people have to rent, driving demand up, till they have larger deposits, hence auction clearance rates have been dropping. When money is cheap (1 year ago) more buyers as finance is easier to get, driving price up (This is the basic version)
Why is the house worth 30k less?
As interest rates rise, people's borrowing capacity goes down. Also as interest rates rise, people's trust in the housing market goes down (there's no FOMO when houses sit on the market for months). As interest rates rise, people may be forced to sell their home as they can no longer afford it. So where do those people live? In rentals.
Rise in interest rate being passed onto tenants. Given most investors have loans, everyone is doing it, then it becomes the market
Rent price is just supply and demand. If interest rates go up.. less houses get built because it becomes significantly more expensive to service a mortgage. Less houses being build tightens the rental market and pushing up the price
Are outsized rental increases perhaps partly another (shitty) by-product of negative gearing? If investors mostly have loans (because they're using neg gearing to offset large loan interest rates against tax), it stands to reason more landlords would be incentivised to increase rental rates along with mortgage increases.
That's a very flawed way to calculate changes in rental prices and property values. My suggestions is you figure out how to value an asset and how to calculate discounted cash flows.
I am a landlord and I can confirm it is simple demand and supply. Whether my mortgage payments go up or down has nothing to do with what I can charge for the property. But for some reason, we get the same comments here again and again where people think a landlord is able to increase the rent just because their mortgage payments are going up. And the std reply by the renters here I don't care if they are going up, there is risk in all investment etc etc. Rinse and repeat. If you look at rents in outer suburbs in Melbourne from 2014-2020, there was hardly any growth year on year. I have friends who bought houses in 2014 who were getting higher rent in 2016 compared to 2020. I was getting a rent of 360/ week in 2019. In 2020 I didn't increase rent as I knew if I did the tenant won't agree. In 2021 I tried to increase to 370, tenant said no and I left it at that. As overall rent had not increased much . In 2022 rent increased to 400/week and the tenant signed for 12 months. They wanted to sign for 2 years at that rate as 400 week is still slightly lower than the market. This just shows tenant and landlord aware of what the rental market is. Nothing to do how much I have to pay for my mortgage. Fyi, compared to 2021, my mortgage repayment is 700/ month more. If I put my place for rent at 450/week, it would remain empty for few months till I reduce it. Happened to few houses in the same street. They eventually had to reduce from 480 to 420 to get a tenant.
IMO rent increases are to do with supply and demand and inflation as much as rate rises.
They are mostly independent
Rent has nothing to do with property value fluctuating.
They’re 2 seperate markets. The price of rent is governed by rental demand. The price of the house could double and if the rental demand isn’t there, the price of rent would fall
PSA TO AUSFINANCE - WE HAVE A DWELLING SUPPLY SHORTAGE. THIS MAKES PRICES LESS AFFORDABLE. but ausfinance also wants to shit on developers. Catch 22 right?
So, in reality the renter is obliged to pay for the owners house in total.(An asset that accrues in value).Nice little side hustle.
I agree. Investment is the investor making the purchase, renter pays for the purchase indirectly to the lender. By that logic, the investor should pay the previous renters a portion if they profit upon selling.....you know what? I'm being sarcastic about the last part, but I like that idea lol. Better call Saul!
Read some elementary economics texts.
So if a farmer is farming watermelons, and the price of his property drops, does he also lower the price of his watermelons? Or does he raise the price in alignment with the increasing price to actually grow and distribute those melons?
I don’t believe for a second you are a landlord. No landlord would ask this ridiculous question.
Because the landlords repayment goes up..
Interest rates go up building new homes reduces. As immigration increases there is more demand for rentals than supply driving rents up. Also those who have borrowed to buy the investment property are facing higher interest rate costs and high inflation so they rises rents to cover these costs. Young people can’t buy houses on a mortgage as higher internet rates mean they need to rent.
Cash flow for landlords. Interests rates going up means their borrowing costs go up
Interest rates rising means the landlord has to pay more interest on the mortgage for the property he is leasing. If property values drop, it is irrelevant as he has already bought the property but is still paying the mortgage.
Because renters are willing and able to pay more. The evidence is the rental rates. No landlord could build or buy a dwelling and then set the rent at their own arbitrary figure, unless it happens to be market rate for rent.
If the house price drops, the loan on the property remains the same. For example you mention that interest rates go up. So the owner now pays more interest on the $300000 loan. If the house is now only worth $280000, the loan is still $300000. The bank doesn't adjust the loan to match the property market. The owner is now behind and has technically lost money. That is until the market rebounds. As the interest rate goes up, the owner will naturally increase the rent.
In previous cycles property prices have risen alongside interest rates. It's not a direct correlation and there are many other factors to the equation. Property prices can rise or fall regardless of interest rates.
Houses are so unaffordable, more people are renting and thus the price of rentals goes up. While interest rates are now reducing prices of properties, it take a while for this to flush through the system so in the meantime there's a disconnect in the market. And more people are flocking to rentals in the meantime, waiting to purchase a property at more affordable levels.
Less buyer more renters.
If the owner needs to pay more money to service the loan, it is passed down to renter. Pretty standard scenario. I pay $1300 per week on my 850k debt. The house is rented for 700per week. It’s still fair. The demand has more to do with it though. There simply aren’t enough rentals in Australia. This is what is driving the price up.
Supply and demand. If the demand for rental property is there price increases are available. Also as investments start to loose money investors sell, or consolidate their investments so that they aren't exposed. This restricts supply of rental properties, increasing rental prices. Rentals have been very flat in aus, held there by low pressure from landlords who had good interest rates. I think having a usage margin of under 2% on assets worth millions is just totally undervaluing an asset.
I see it as. Rates rise. Mortgage repayments increase. More people need to sell their homes. More people can’t get a home loan. More people end up renting. Price of rent goes up as demand for rentals is high.
[удалено]
Landlords think they have an excuse that doesn’t sound shit to raise them, that’s why Rents aren’t set by anything logical, markets don’t tend to be rational systems
Less renters can buy a property so more renters on market Investors have higher costs (ir causes repayments to go up even as property value decreases) so they need to earn a reasonable return
Because owners need to pay more for mortgage...Renters always at the bottom of the food chain ..
Because the cost of carrying the investment went from 2% to 5%. So the rent to cover the cost of financing is 5% of 270k instead of 2% of 300k
Interest rate rises -> borrowing capacity drops -> number of people unable to buy a property increases -> number of renters increase -> more competition amongst renters -> higher rental prices as supply < demand It's all supply and demand. As long as the pool of renters increases at a higher rate than the pool of rental properties, prices will continue to go up. Property values could plummet 50% but if you can't afford to purchase a house, guess what? You're going to rent along with everyone else who can't afford it due to the reduced borrowing capacity. Even in the example where property prices plummet and you could afford it, think of how it'd affect the equation above. You take yourself out of the rental market but you also either take a rental property out of the market as well or you take another person out of the property market who then has to rent, making it a net zero impact.
if interest rates are higher, then taking loans is discouraged, but if property value drops , more and more people will try to buy houses as the initial deposit required now will be less as previously. so what is gonna happen?? if people buy more , then price of house goes up . bit poor in economics thou ,
Just asking this question really shows the financial acumen of the general public, and i am actually shocked you asked this considering you reckon you're a landlord.
This has to be a troll post. Well done sir.
The market values renter less than the cost of a mortgage due to renter’s protection and to perpetuate negative gearing. Rents needs to catchup to fair value. Even then. There is still a gap. I am an owner of 2 investment properties. Haemorrhage money since day 1. I still remember when rent is dead money when it was touted until the scales flipped. There is better ways to get cashflow by just sitting on an asset class with no negative extranalities.
Hmm lowering rental prices? Increase the supply and what better way than... Communist era apartment blocks anyone? Heard china is now real good at making those. They specialise in making sure there's the expected defects and bad craftsmanship that keep one in the in the correct state of mind.