Low vacancy rates. What are they? How do they impact tenants and landlords? And what impact do they have on insurance? Find out below...
Did you know that a vacancy rate of three per cent is considered healthy? Why? Because it represents a rental market balanced between tenants and landlords. Areas with vacancy rates of less than two per cent mean high rental demand, while rates above four per cent mean that there is more housing supply than demand.
Where do vacancy rates currently stand?
PropTrack's Rental Vacancy Rates for September noted the national vacancy rate was at a record low and predicted it will likely decrease further. The combined capital city vacancy rate has been trending down since the start of the pandemic and is now 57 per cent lower than it was in March 2020 and down 21 per cent from last year. Meanwhile, in August, the national vacancy rate fell 0.1 per cent to sit at 1.2 per cent, according to figures from SQM Research. There were only 35,425 available rental properties Australia-wide over the month. Every capital city recorded a dip in vacancy rates, except Melbourne (held steady at 1.3 per cent) and Darwin (held steady at 1.0 per cent). Domain notes Australia needs 40,000 to 70,000 additional rentals to shift to a balanced market.
What does this mean for tenants?
The ever-increasing demand for rental properties means prospective tenants are struggling to secure a lease. PropTrack notes demand for rentals in the capital cities has grown strongly over the past two years, with the number of potential renters per listing increasing by 40 per cent since May 2021.
And for landlords?
One of the biggest advantages for landlords is the possibility of higher rents. The simple economic principle of supply and demand means that higher asking rents may be possible. However, it is important for landlords to be across applicable laws that dictate when, and how much, rents can be increased. Click here for our guide to rent increases.
With this all being said, it is no surprise that low vacancy rates are leading to intense competition between prospective tenants. As a result, renters are offering to pay landlords a premium above the advertised price.
Top tip: Landlords should be careful about engaging in rent bidding (where tenants offer more than the advertised rent to have an advantage over other applicants). The practice of soliciting rent bids has been outlawed in SA, NSW, Victoria, Queensland, Tasmania and the ACT (from 1 April 2023). In most jurisdictions, it is not illegal for tenants to offer above the asking price, but it is against the law for agent or landlord to suggest that they do.)
Why is an insurance provider telling you this?
Because vacancy rates and the flow-on effect can have an impact on cover.
Rent increases. Landlords should remember to advise their insurer if they have increased the rent on the property. Once a new rent amount has been set, the landlord (or their agent) needs to make sure the lease agreement and rent ledger are updated. If a claim for rental losses is made, the policyholder will need to provide these documents as supporting evidence. As the payout is likely to be based on the documented rent figure, it pays to make sure it’s accurate. It is also important that the policyholder checks that the new rent is within the policy limits. Landlord insurance policies will set a maximum rent that the insurer is willing to cover (at EBM RentCover it’s $1,500 per week).
Changing tenancy term. Several state and local governments are encouraging owners of short-stay accommodation properties to make them available for standard leasing. Landlords who had previously offered their property on the short-stay market and have decided to switch to fixed-term leasing should check that their landlord insurance is still relevant. There are different policies for different letting scenarios and it’s important to have the right type as they cover specific risks and may respond to insured events differently.
Ultimately, if something changes to the way you rent out a property, you should let your landlord insurance provider know. If you don’t, it could mean the difference between a claim being paid or not (or being reduced).
Have you increased your rent recently? Or changed the way your property is rented out? Let us know today. Chat to a member of our Expert Care team – 1800 661 662.
*While we have taken care to ensure the information above is true and correct at the time of publication, changes in circumstances and legislation after the displayed date may impact the accuracy of this article. If you need us we are here, contact 1800 661 662 if you have any questions.
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