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How high rental demand is being driven by the work-from-home revolution – as bank boss warns there is no ‘quick fix’ to Australia’s housing crisis


An increase in working from home has helped boost demand for rental properties, the Reserve Bank’s chief economist has said.

Australia’s population of just under 27 million lives in about 11 million households, with an average number of people per household of around 2.5.

But on Thursday, the RBA’s chief economist and assistant to the governor, Sarah Hunter, said a shift to working from home, which has been in overdrive during the pandemic, had also helped drive the change as Australians look for extra rooms – not to house a person, but a computer. .

Dr. Hunter (pictured) also warned there was no «quick fix» to Australia’s housing crisis

«While some people have returned to their full-time workplaces, there has been an increase in the proportion of people working from home – for many, home office space is now highly desirable,» Dr Hunter told a business conference in Hobart on Thursday.

«This suggests that the recent decline in the average number of people per household will be at least partially permanent.»

If the decline in housing numbers over the past 40 years was reversed, Dr Hunter said Australia’s housing shortage could be significantly reduced.

“If for some reason the average household size were to increase back to 2.8, we would need 1.2 million fewer apartments to house our current population – no small difference,” she added.

Rent prices have jumped in capital markets, hitting renters' household budgets

Rent prices have jumped in capital markets, hitting renters’ household budgets

Landlords are not going through rate increases

Later in her speech, Dr Hunter claimed there was «little to no evidence» that landlords had passed on the costs of skyrocketing mortgage payments to their tenants.

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As borrowers have been hit with 13 interest rate hikes in the past two years, landlords such as owner-occupiers have seen their repayments rise, raising concerns that those higher costs have been borne by renters.

But the RBA’s chief economist said preliminary analysis by the central bank showed higher interest rates were not the main driver of higher rents in the short term.

«The observation that market rents and interest rates move together appears to be a case of correlation rather than an increase in interest rates causing rents to rise,» added Dr. Hunter.

«There is no evidence of a direct pass-through of higher interest costs to rents in the short term.»

Rather, the recent sharp increase in prices was due to the conditions in the rental housing market, as captured by the vacancy rate.

According to the latest measures, rental affordability has fallen to a 17-year low, with rental growth growing faster than many other goods and services across the economy.

Dr. Hunter also warned there was no «quick fix» to Australia’s housing crisis.

«Demand pressure, and therefore upward pressure on rents and prices, will continue until new supply comes online,» said Dr. Hunter.

«We expect this response to take some time to materialize given the current level of approvals for new dwellings and information from the contact person that many projects are still not viable.»

A historic surge in house prices and rents has triggered a wave of new construction as developers look to capitalize on increased profitability.

However, with a «perfect storm» facing the sector, Dr Hunter said capacity constraints in the sector continued to drag on activity.

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«Businesses in our liaison program are reporting that there is currently a shortage of completion trades as a number of projects started during the pandemic are progressing towards completion,» she said.

The senior RBA official’s comments come amid ongoing policy wrangling over soaring costs and an anemic supply of rental properties.

While Labor has thrown its support behind measures to boost the supply of social and affordable housing to ease skyrocketing rent prices, the Greens have backed unconventional methods, including freezing rents and setting up a public developer.



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