Historic Low in Residential Rental Vacancies
Category News
According to TPN Credit Bureau's latest Vacancy Survey Report for the first quarter of 2024, residential rental vacancies have reached their lowest level since 2016. This decline is driven by a surge in demand for rental properties, outpacing supply amidst a trend of declining homeownership.
An increasing number of households are opting to rent as high interest rates continue to make homeownership unattainable for many. The shift towards renting rather than homeownership is expected to continue as long as interest rates remain high. Interest rates have stayed at a 15-year high for six consecutive quarters, continuing to pressure indebted consumers.
Both the property market and many economists had anticipated interest rates would begin to decrease in the second half of 2024. However, heightened uncertainty has put any potential rate cuts on hold.
High interest rates, coupled with persistently high unemployment, directly impact formal residential rental markets. According to Stats SA's latest General Household Survey, the proportion of people living in a property they owned or were in the process of purchasing declined from 64.4% in 2022 to 62.9% in 2023. Conversely, the percentage of households in the rental market rose from 22.5% in 2022 to 23.9% in 2023.
In the first quarter of 2024, the national residential vacancy rate fell to its lowest level since TPN began the Vacancy Survey in 2016. Nationally, 4.42% of rental properties were vacant, down from 6.69% in the previous quarter. The survey, which measures the number of vacant full-title and sectional-title residential units, offers the most comprehensive and complete overview of the industry.
Although national vacancies are at their lowest level on record, the TPN Rental Market Strength Index registered 59.66 points, below the 2016 average of 64.73 points. In 2016, the national average vacancy rate was 6.53%.
The TPN Rental Market Strength Index measures the perceived demand and supply within the rental market. At 50 points, the rental market achieves equilibrium when perceived demand matches supply. Currently, the rental market stands 9.66 points above equilibrium, reflecting stronger demand than available supply. With low vacancies and positive rental growth, the overall supply rating in the first quarter of 2024 is 57.54 points, while demand is at 76.85 points, underscoring optimistic sentiment within the residential rental market.
In the first quarter of 2024, the Rental Market Strength Index showed improvement across all rental value bands. The R12,000 to R25,000 per month rental band led with the highest index at 61.56 points, followed by the R3,000 to R4,500 band with a rental strength score of 59.43 points.
According to Stats SA's latest General Household Survey, in Gauteng, 37.8% of households rent, while 35.9% live in fully paid, owned properties, and 10.5% reside in properties they are still paying off. The remaining households occupy property rent-free. Vacancies decreased from 8.14% to 4.3% in the first quarter of 2024, largely due to increased demand. Supply saw a slight decrease, resulting in the province's Rental Market Strength Index reaching 51 points, the highest since 2018.
While decreased residential rental vacancies bring positive outcomes for property owners and investors, constrained household budgets might lead to more tenants defaulting on rent payments. While the current low vacancy rate offers investors greater security and less concern about empty units, in a high-interest-rate environment, it remains crucial to consider location and rental value bands.
Author: Huizemark Sandton