The collapse of the housing market in Australia’s largest city of Melbourne has left the biggest financial institutions and pension trusts with a massive amount of money to pay back creditors, but they are doing so at a time when the real estate market is still in a slump.
In July last year, the Australian Government announced a $30 billion capital injection to prop up the property market, which was initially expected to generate an increase in demand for housing, but has since stalled.
The Federal Government has yet to provide a full recovery to the market, and the latest numbers released this week show a rise in the number of people renting for a one-bedroom apartment, despite the Federal Government’s new policy of introducing a cap on rental properties in the state.
A total of 6,746 people were renting one-bedrooms in Melbourne in the month of August, according to figures from the Melbourne Real Estate Council (MREC).
This represents a 2.6 per cent rise on the same month last year.
That was despite the Reserve Bank having lowered its target for interest rates in August, with the central bank expecting a return to zero in the next two months.
Melbourne has seen a sharp rise in rents over the past three months.
The median rental rent for a house in Melbourne was $2,977, a 7 per cent increase over the same period last year and the biggest increase for the past year.
“Rent has risen sharply over the last three months,” said MRA president David Mancuso.
“The big question is, how long will this continue?”
Rents have also risen dramatically in areas like Sydney and Melbourne, which have experienced record high levels of household debt, but where rents are not a factor in the markets.
While rents in Melbourne have not been affected by the global financial crisis, the rise has put pressure on those in the realtors business, as they struggle to compete with higher rents and a growing number of new properties being developed in the city.
This has forced the MREC to take action.
The association has set up a fund to provide loans to financial institutions that are in a financial disadvantage because of the shortage of available apartments.
MREC chief executive Andrew Condon said the bank’s funding was helping to alleviate the pressure on the realtor industry.
“(The fund) will be helping to ensure that the banks can survive and compete with the increasing number of properties being built in Melbourne, especially in areas that are vulnerable to this kind of pressure on rental prices,” he said.
But the funds’ success is not just dependent on the banks, as many of the companies in the rental industry have also stepped up to the plate to help in the relief effort.
Brisbane property developer and property consultant, John Foulkes, said that while the fund was intended to provide the banks with liquidity, it was also a chance for companies to be competitive in the market.
“[The fund] is also the opportunity to provide lenders with additional capital, and I think the banks are going to do whatever they can to get more credit available to them,” he told ABC News.
Rent increases have also been seen in areas such as Melbourne’s east, where the market has seen huge rises in recent months, as the demand for apartments in that region continues to increase.
Meanwhile, there have been a number of recent developments that have boosted the property industry’s ability to expand.
First, in September last year the Federal government announced the introduction of a cap of rental properties at 50 per cent of the median price, which is one of the highest rental caps in the world.
However, the cap is set to be relaxed in March next year, and will be lifted to 50 per 100 per cent.
Secondly, in August last year Australian Bankers Association chairman David Goulston said that a cap would be a “good thing” for property investors in Australia.
He said the introduction in September would ensure that banks could continue to provide mortgages to those who are vulnerable and that would allow banks to increase their lending to those people who are looking to buy a home.
Goulston was not the only one to support this.
Last month, Bank of Melbourne CEO Mark Giannandrea said that the Federal Budget had also seen the introduction, along with the introduction earlier this year of a rental cap.
As well as the Federal policy, the Bank of Australia has also introduced a cap that is set at 30 per cent for all properties in Victoria, which means that all properties could potentially be below that rate by the end of the year.
It is not the first time the Australian Financial Review has highlighted the impact of the rental market in the country.
Back in June last year we ran a story about the impact on real estate in Melbourne.
At the time, the market was in an upturn, but it was