Rent Or Buy, Families Hit A Brick Wall

Sydney Morning Herald

Friday July 25, 2008

Jacob Saulwick and Jonathan Chancellor

SYDNEYSIDERS are caught in a bind as rising interest rates push more people into mortgage stress at the same time as the rental squeeze makes it impossible for people in some suburbs to find rental accommodation, with young families particularly exposed.

A million households, or 15 per cent of all home-loan borrowers, could be in mortgage stress by Christmas, a report published yesterday said.

There is no relief in the rental market as a sharp fall in construction is blamed for pushing rents to new heights, especially in western Sydney.

The increased mortgage pressure would not be caused by the Reserve Bank, but by commercial banks responding to global tumult by lifting mortgage rates, said the report, by Fujitsu Consulting and Wizard Home Loans.

Underlining the uncertainty faced by hard-pressed home-owners, the chief executive of the Commonwealth Bank, Ralph Norris, refused to rule out further increases in rates yesterday.

"At the moment we see the average cost increasing on a day-by-day basis, and that's why we've had to increase interest rates out of sequence with the official cash rate," Mr Norris said.

There are 278,000 households in NSW struggling to pay their mortgages, according to the report. That number is likely to reach 350,000 by December.

"Young growing families" are under most pressure, said the report, based on a sample of 26,000 consumers.

More than 30 per cent of borrowers identifying as young families were under mild mortgage stress. Another 10 per cent were under "severe stress". Stress is defined as spending more than 30 per cent of income on mortgage payments.

Soaring rents are adding to the pressure, according to data from Australian Property Monitors. Canterbury-Bankstown recorded Sydney's highest rent rises over the past year with a 20 per cent rise to $300 a week for units. House rentals in the district rose 15 per cent, to $380.

The unit rental growth almost doubled Sydney's typical 11 per cent jump and matched Sydney's 15 per cent growth in house rents.

The biggest increases were in areas that attract a lot of young couples and recent migrants, with apartment rents in Bankstown and Liverpool rising as much as 25 per cent in the past year, said Peter Poulos,the principal of Home World Realty, Bankstown.

"There's no building going on, and there's just a lot more demand," he said. "We've got nothing to rent out."

Canterbury-Bankstown and Liverpool at 1.9 per cent have Sydney's tightest vacancy rate, says SQM Research, with about 1100 properties available for rent.

The best availability is on the lower North Shore, at 6.5 per cent, and the Sydney CBD, at 6.3 per cent, with more than 2000 vacant houses and units.

However, they are also Sydney's most expensive districts. At $800 a week Sydney's highest house rentals are on the lower North Shore and at $475 for units in the east and inner-city.

"The overall picture remains grim for renters across NSW," said the president of the Real Estate Institute of NSW, Steve Martin said.

"There is only so much slack before the rental accommodation rubber band is going to snap," he said.

The Sydney rental market would remain tight as supply continued to outweigh demand over coming years, said the head of Raine & Horne, Angus Raine.

"There hasn't been any new stock of any significance being built in the past three years, so this problem will be ongoing."

© 2008 Sydney Morning Herald

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