How short-term landlords bring in thousands per month

Thursday, 25 August 2022 — Albert Park

[5 min read]

Dear Reader,

The rental market couldn’t be tighter.

Properties available for rent are at an all-time low — and falling.

SQM Research recorded a 4.5% drop in listings over the last four weeks.

Sydney and Melbourne are starting to feel the pain, with the number of homes available for rent in Sydney at a five-year low and in Melbourne at a three-year low.

This from SQM Research’s Managing Director Louis Christopher:

‘Rental listings in Sydney and Melbourne are continuing to fall at a time when demand is soaring due to increased migration and local demand, so we’re likely to see vacancies fall further.’

The situation will inevitably be further strained with the Albanese Government confirming a week or so ago that they plan to ramp up immigration to record levels.

Rental demand soars

It’s estimated that there were 1.1 million overseas arrivals last month:

They will likely be capital city renters before they’re buyers.

Migrants flock mostly to Sydney and Melbourne.

This goes some way to explaining why we’re seeing headlines such as:

That should feed into higher apartment prices over time.

Some suburbs are already seeing it.

Capital city rentals are also benefitting from a U-turn of workers (at least in part) returning to the city:

The sharp increase in rental demand in Brisbane, Melbourne, and Sydney is highlighted on the chart above by the red arrows.

The thing is, there’s no sign of a significant lift in rental supply to ease soaring demand either.

Multiple major construction firms have collapsed due to the cost of building materials and labour shortages.

Steel and timber have escalated by more than 40%. And labour costs have additionally increased by more than 10%.

Long term versus short term

Demand for short-term rentals from strong domestic tourism is stressing the long-term rental market further.

No surprise, considering new research showing the difference in income between a good short-term and long-term let.

Take a look for yourself:

The difference is substantial.

According to the data, a short-term let with good occupancy in Sydney can get 171% more weekly rent than a long-term rental.

That could go some way to explaining why Sunshine Beach house prices have almost tripled in five years.

Property prices in Noosa Shire have lifted a whopping 195.5% over five years to June — the steepest growth of any suburb in the country!

The auction market has picked up over the last few weeks as well.

Likely buoyed by investors searching for yield and the renters that can, jumping into the property market to avoid future rent rises.

Auction stats are not 100% reliable due to the number of unreported results that need to be chased up mid-weekly.

However, the percentage change from week to week is a leading indicator to changes in market prices. So it’s something I watch closely.

Saturday’s results once again showed a marginal uplift of activity in Melbourne.

An auction I attended in Melbourne’s Mill Park sold for more than $100K above reserve, with multiple bidders.

It wasn’t the only one either…

‘A surging suburban auction that smashed its reserve by an incredible $385,000 has market experts saying homebuyers no longer fear interest rate rises.

‘Multiple homes sold hundreds of thousands of dollars above reserve yesterday as Victoria’s auction market recorded an 66 per cent clearance rate from 476 reported results, according to preliminary PropTrack figures.

‘A Wantirna South house was arguable the day’s most impressive result, sold for $1.74m and earning its owners an incredible $385,000 premium above their reserve.’

The Herald Sun

Makes me wonder how inaccurate ANZ’s call for an 18% drop in prices through 2023–24 will be!

‘We expect capital city prices to fall 18 per cent over the balance of 2022 and 2023, before a 5 per cent gain in 2024 as mortgage rates fall.’

The problem is that real rates (adjusted for inflation) are sitting around -4.25%.

Something Terry McCrann noted the other week in The Weekend Australian — arguing that the RBA interest rate hikes are, in fact, ‘super stimulatory’:

‘Now the RBA’s cash rate is up to 1.85 per cent. But inflation for the year to June was 6.1 per cent.

‘In real terms, over the year so far, the RBA has cut its official rate — from minus 3.4 per cent to minus 4.25 per cent; going from super-stimulatory to even more super-stimulatory.’

Have faith in the property cycle

That’s not to say it’s an easy ride for mortgage holders right now.

But hikes in the cash rate are clearly not crashing the property market either.

Let’s not forget that the major banks have an appalling track record for accuracy in their forecasts.

They’re like lousy weather forecasters.

The outlook flips depending on what’s happening in the moment.

Hence why in 2020, the forecasts of a 30% crash flipped as soon as buyers started rampaging into the market.

The problem is, with no overriding knowledge of the property cycle, they’re blind.

You, as an investor, don’t need to be.

To find out why — click here!

Best wishes,

Catherine Cashmore,
Editor, The Daily Reckoning Australia

Dear Reader,

Where do they get these numbskulls? We refer to a whole class of grifter and greaser on the federal payroll. But today, we choose just one, Energy Secretary Jennifer Granholm.

From Fox News:

‘During an appearance on Fox News Sunday, Granholm said the Democrats’ $437 billion climate and health care legislation will provide thousands of dollars in tax rebates for lower- and middle-class Americans to weatherize their homes.

‘“If you are low income, you can get your home entirely weatherized through the expansion from the bipartisan infrastructure laws, a significant expansion — you don't have to pay for anything,” Granholm said.

‘“If you don't qualify for the weatherization program, you will be able to, starting next year, get rebates on the appliances and equipment that will help you reduce your monthly energy bill by up to 30%,” she added. “That is all about reducing costs for people.”’

Really? You don’t have to pay for anything? It’s all about reducing costs?

Time’s up

People naturally want the most for their money. And if the ‘green’ alternatives really were less expensive, consumers would select them without bribes; it’s only because they are more expensive (uneconomic) that the bribery is necessary. The feds are subsidising energy sources that are inherently more costly, not less…misleading consumers about the real costs and changing how they spend their money.

So it isn’t about ‘reducing costs for people’. It’s about raising them. And ultimately, someone must pay the higher costs. Who? We’ll give you some time to think about it…

…

…

…time’s up.

Corporations? Nope. Corporations only collect taxes; they don’t pay them. Like any other cost of business, higher taxes are passed along to consumers and/or shareholders. The part that goes to consumers must be paid by the same people Ms Granholm now claims to be helping. The part paid by shareholders reduces earnings…thereby also reducing investment, jobs, and output…that is, making ‘the people’ poorer.

The rich? Are they the ones who pay? Let’s see, all legislation is ginned up by party hacks, lobbyists, insiders, and big campaign donors. Almost all of whom are relatively rich. Do you think they would propose to pay hundreds of billions of dollars so homeowners can cut their energy costs? And what about Members of Congress? Over half of them are millionaires. Would they vote for it?

Right. Happens all the time. The elected representatives of ‘The People’ put aside their own selfish interests in order to assure the well-being of the masses. Yep. That’s what democracy is all about. Sure, it is.

No, dear reader…neither corporations nor the rich will pay for the IRA boondoggle. Instead, we, ‘the people’, will. The feds will call the tune; but average citizens will pay the piper.

Which is too bad since the feds are tone deaf. The IRA, to use the example in front of us, is a cacophony of false notes and broken rhythms. The program doesn’t take from the rich to give to the poor. It doesn’t reduce inflation. It doesn’t cut deficits. And the odds that future generations will appreciate our sacrifice — because they will enjoy better weather — are vanishingly small.

But wait…some people are already coming out ahead.

Rotten fruit

As Jean-Marie Le Pen put it, ‘ecologists are green on the outside, and pink (socialist) on the inside’. The rind may be about protecting the planet; the juicy fruit on the inside, though, goes to themselves and their friends.

The IRA provides US$161 billion worth of credits for solar and wind power projects; US$36 billion for electric vehicles and another US$37 for manufacturing plants that run on ‘green’ energy. Who gets the money?

AOL reports: ‘Clean energy stocks are the winners of the Inflation Reduction Act’:

‘“There are many facets of this bill but, EV’s and clean energy we think are going to be the two main winners based on where the dollars are being allocated,” Blackrock’s US head of thematic and active equity ETFs Jay Jacobs recently told Yahoo Finance Live.

‘Solar companies like Sunrun (RUN) and First Solar (FSLR), as well as energy storage and software companies like Stem (STEM) are just some of the beneficiaries of the bill. STEM is up 93% since late July.

‘Hydrogen fuel cell developers Ballard Power Systems (BLDP) and Plug Power (PLUG) are also seen as winners.’

Who owns these companies? The poor? The middle classes? Not likely. Instead, they’ll have to borrow money to buy their products. As Ms Granholm tells us, those energy saving devices can be financed…so the banks and non-bank lenders get a piece of the action too. And then, ‘The People’ end up even deeper in debt, earning even less money, paying even more for almost everything — but with solar panels on their roofs!

Regards,

Bill Bonner,
For The Daily Reckoning Australia