We provide expert property management in Newcastle and Lake Macquarie. Based in Charlestown NSW, we have been delighting property investors with our personal, professional service since 2011. If you find this article helpful or enjoyable, please subscribe or share it with someone else who may benefit.
The current rental market across Newcastle and Lake Macquarie is running hot. We have been writing for months now about low rental vacancy rates across Newcastle and Lake Macquarie and the impacts this has on driving house prices and rents upwards.
As in basic economics, as supply decreases and demand increases, prices increase with demand. The thinking of "my property is worth what someone will pay for it", while true, can have more significant consequences.
In this article we provide an overview from a property management perspective of what is happening right now for renters across the region, our frank opinion on the exploitative nature of some rental asking prices, and the impact this is having.
The Rental Situation Across Newcastle and Lake Macquarie
Right now across Newcastle and Lake Macquarie, renters are finding it incredibly difficult to find properties. Keen applicants who have experienced knock-back after knock-back are experiencing real estate agencies telling them "If you want the property, you need to offer more".
We wrote 3 years ago (in January 2018) about our position on rent bidding i.e. the process of encouraging potential tenants to offer more for a property than advertised. The rental market back then when we wrote that article was very different to the post-COVID, heated market of today. But our stance remains the same.
Our policy is one of transparency with all parties. We will not encourage higher "bids" than the advertised rent and we will never approve an applicant simply because they have offered the most rent. We will discuss higher offers with the landlord, alongside all other prospective quality applications.
But the highest rent should not "win" the property. Following is some of our reasoning why.
Some Rental Prices Are Exploiting The Dire Circumstances of Tenants
Firstly, of course we understand that property investment is a wealth-creation excercise. To be blunt, the higher the rent achieved for the landlord, the greater the revenue for the real estate agency as well. From a purely financial perspective, it can seem like now is the perfect opportunity to capitalise on the undersupply of rental properties and hike rents upwards significantly.
We believe that rent should be set appropriately against the market. However, we don't believe that setting the rent as high as someone can afford is setting the rent appropriately.
Some of what we are seeing in the market right now appears exploitative of the dire circumstances some tenants are finding themselves in.
There are many tenants we have spoken to in recent months who are offering significantly above the advertised rent simply to secure a property. In some cases, not even a particular property. Any property.
We have received applications from tenants at up to $80 higher than the advertised weekly rent, along with comments such as "If I don't end up getting this one, I'll pay up to $xxx for anything you've got... I just need to find a place for my family to live".
What a stressful position to be in.
We do not feel comfortable taking the approach that whatever a person NEEDS TO AFFORD is what sets the accepted rent for a property.
Right, so that's our moral position on what's happening right now. But the problem runs deeper...
Unrealistically High Rental Pricing Is Leaving Some Properties Vacant
Though it seems crazy, we are now seeing examples on the market of properties which have their rent set so high that they are remaining vacant.
That's right. At a time when we are seeing record low vacancy rates and record high demand for properties in the region, some properties are being listed with such high rents that they are remaining vacant.
Just this past week we completed a rent review of one of the properties in our portfolio. A year ago, this property leased for $485 per week. It is in a complex where a near-identical property is now sitting vacant, with an asking rent of $580 per week.
At a time when many tenants are increasingly desperate to find a rental property, putting a property to market at almost $100 per week above the established pricing for similar properties just a year ago is quite staggering.
Aside from the moral considerations here, there are obvious financial implications of this for the investor.
This particular property has now been advertised for over 30 days, and has been vacant for more than 3 weeks. Think about that. In the current, heated market, this property has sat not producing any income for 3 full weeks, after a week-long advertising campaign had already been in place before it became vacant.
This investor is losing money while waiting to find someone who will pay the incredibly high listed rent.
Some Tenants Are Offering High Rent Simply Because They Have No Other Options
As said above, many renters facing dire situations are offering whatever they can to secure a property. At times, what is being offered is not reflective of the value of the property, but the value of having their urgent living situation resolved.
Put another way, we are seeing tenants offering higher than market rent not because they really love the property, but because they have no other options. These tenants have an immediate problem to be solved.
As a landlord or agency, encouraging tenants to offer as much as they can to secure a property may solve a high-paying tenant's problem right now. But the moment that tenant has moved in, they will likely begin a high priority but less urgent search for a more reasonably priced property.
The result? The highest paying tenant under these circumstances is likely to vacate earlier than a tenant would had the rent been more reasonably set. As an investor, this results in yet another round of advertising costs, leasing fees and potential vacancy - inevitably costing more than would be gained from the rental premium being asked.
In summary, there is no easy solution. The reality is there are more tenants looking for properties than there are properties available. Economics 101 tells us this will justifiably drive rental pricing higher.
Our role as property managers at this time is to balance our responsibility servicing the objectives of our investors, with a sensibility and awareness of the implications this has to those we are renting to.
We provide expert property management in Newcastle and Lake Macquarie. Based in Charlestown NSW, we have been delighting property investors with our personal, professional service since 2011. If you found this article helpful or enjoyable, please subscribe or share it with someone else who may benefit.
Carnelian Property Management Newcastle NSW
We are a family-owned and run Charlestown real estate agent offering expert property management across Newcastle and Lake Macquarie.