Stag-Rental – Property’s Answer to Stagflation
RENTS are expected to jump another 10% this year after building approvals fell to their lowest since the end of 2006.
Home-building approvals have dropped nearly 8% in a year, after falling another 0.7% in June, in seasonally adjusted terms. Apartment approvals have dropped 22% in a year, down 1.4% in June after a 19.5% slump in May.
Rents to increase a further 10% this year on top of the 12.7% increase over the last 12 months? Have our wages increased by 22%? No. They never will. Not from the waged sector. But those earning speculative income regularly have such growth.
But why the lack of new homes? Most likely is that land prices have reached such a zenith that it is no longer economical for builders to undertake risky ventures. The supply of cheap credit over the last decade has been filliped by tax carrots magnetising entrepreneurs into the land banking market. Thus the bubble in land prices.
Now the fall in land prices in the US infers that banks can no longer securitise against land prices with certainty. Thus the credit squeeze and from that the lack of building.
Wary builders understand that when all these factors are added together and divided by the comparatively low earning capacity of workers, the likelihood of defaults outweighs the opportunity for profit.
This situation is in effect the housing market’s equivalent to stagflation (low growth, high inflation). What we are seeing here is low building growth and high rents. Dare it be called Stag-Rental? In stagflation no one wins. In Stag-Rental, landlords win hands down/ tools down.
Sure the term sounds like a male brothel, so taking the analogy a step further, who can argue that we aren’t the players on the street and the landlords are the pimps cruising past in their new Bentleys? Monopoly power delivers certain privileges.