Affordable Housing

Heads Up, California: Sydney Has Figured Out How to Get the Rents Down

It's by building lots more housing, obviously.

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Sydney, Australia, may not be New York or London or Los Angeles, but it's a big city with a population approaching five million. It's got more people than the San Francisco area.

But unlike San Francisco (or Los Angeles, or several other major American cities), rental prices in some parts of Sydney are seeing a massive decline—as much as 100 Australian dollars a week in some places.

It is not some magical mystery as to why Sydney's rental prices are declining. And it's certainly not due to rent control. It's because Sydney's seeing a building boom. The size of Sydney's apartment market has doubled in two years, and landlords have had to drop rents in order to get tenants.

The Sydney Morning Herald reported over the weekend that the city has seen more than 30,800 multi-unit dwellings built last year, a record for any Australian city. And there still are nearly 200,000 additional dwellings in various stages of development. The city is seeing a glut driven by investors.  And those investors are now leasing out the apartments.

This overabundance in rental properties has spread across the economic spectrum. Median rents in some more expensive parts of the city range around $1,400–$1,700 a month (in U.S. dollars). But there are parts of town where the median rental price is $850 a month, thanks in part to the oversupply. The glut ranges from simple apartments to townhouses, highlighting an outcome understood by those who are simply begging cities to allow more housing of any kind to be built: An increase in the supply of middle- and upper-class housing will give better choices to people moving up the economic ladder, freeing up older housing and making it more accessible to people with lower incomes.

Compare these numbers to San Francisco and its stagnant housing market. In June, median rental rates there for one-bedroom apartments passed $3,600 a month.

A policy expert for Tenants Guild of New South Wales makes it clear to the newspaper that he understands exactly why rents are coming down: "At a city-wide level, we've had rent prices set by restrictive supply for at least 14 years, probably longer. It will take more than a few quarters for prices to correct to equilibrium."

Rent prices set by restrictive supply, you say? And yet, in California, attempts to bring down sky-high rents by allowing more housing developments keep hitting walls from entrenched interests with a financial stake in keeping things the way they are. That includes current property owners who benefit from the high rates, and it includes construction unions that want their slice of the pie and are willing to abuse the legal process in order to get it.

Meanwhile, homelessness skyrockets. And rather than fixing the problem with more housing, some city leaders prefer to beg the feds for money.

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44 responses to “Heads Up, California: Sydney Has Figured Out How to Get the Rents Down

  1. This falls under the category of “no shit, Sherlock.”

    1. Supply and demand work. Imagine that.

  2. I met a strange lady; she made me nervous. She rented the place next to me and dropped my property values. You better run, you better take cover.

    1. And she said
      Do you come from a land asunder?
      Where people work and leaders plunder?
      Can’t you hear, can’t you hear the blunder?
      You better run, till its all over.

      1. I HATE Vegemite!

  3. So has Detroit. It appears California would prefer the Detroit method of getting rents down over the Sydney method.

    1. But unlike Detroit, California still has the jobs. I would move out if I had an equivalent job elsewhere and the guarantee that it wouldn’t evaporate every time the Fed changed interest rates.

      1. That is changing. Detroit once had the jobs too. Never underestimate the ability of socialism to destroy civilization.

      2. Brandybuck, I take it you’re in tech? I am as well, and moved out of the bay area 15 years. There are plenty of other major cities (Dallas, Houston, Phoenix, Las Vegas) with plenty of tech jobs. And all those places aren’t anywhere near as overpriced or overall shitty as the bay area. Hate to break it to you, but your job is nowhere near guaranteed anywhere in the world. You probably would have an easier and quicker time finding a job in the bay area if you got canned, but there are plenty of tech jobs in all kinds of locations these days, so you’d be back on your feet soon enough elsewhere too.

        1. Yep, great thing about tech is you can get work in any major city, and depending on what specifically you do, you can probably work remotely and live literally anywhere you want

          1. Only semi true, Kevin Smith. I have worked remotely here and there, but I have an office job at the moment. You generally need to know somebody to get a sweet gig like that, or been working at a place for a while where you have a good reputation for them to start letting you work totally remote. Most companies will not trust an unknown to spend his day at home actually working instead of goofing off. It is most definitely technically feasible, but screen sharing and video conferencing is still quite flaky if your job requires collaboration often too.

            1. That’s why you pay salary and set deadlines. My brother only hires people who can work on their own. He’ll fire you in a heartbeat if you can’t.

              1. Metrics are the key here.
                I worked offsite for probably 30 years and made a ton of money; the metrics were agreed-upon, they were exceeded, regardless of whether I was ‘working’ or investing. The employer got their value, I got mine.

                1. My work at home gig (which was a contract actually) lasted almost 4 years, good work while you can get it. It ended because a lot of his clients dried up so there wasn’t enough work to justify keeping me on.
                  Unfortunately, I can understand the employer’s point of view, hiring is a massive risk. There’s the risk of losing some money and time to market if you decide to fire the employee after a few weeks and go back to the hassle of finding a good candidate. The big risk is wrongful termination lawsuits. When my friend who is in commercial property management had to fire an employee, he had to spend a solid week wasting time documenting her failures and getting her training and a chance to up her game, which was really a formality to cover his ass in case of a lawsuit.
                  When I hired a college kid (and he was 2 timezones away) to do artwork for an app I built as a side business, I actually paid him upon completion of milestones, not by time worked. I agree metrics are the key, but it’s hard to find those jobs (especially ones that don’t have a “remote” pay cut) as an employee or contractor and considering most people suck at their jobs and lack work ethic, I can understand why employers would rather have employees in house.

    2. Just clear out all the illegals, and exile all the hardcore progressives. That should balance out CA housing.

  4. http://dailycaller.com/2019/07/12/jacky-rosen-amy-klobuchar-wnba-less-pay/

    Senators ask why WNBA players make less than NBA players. No this isn’t the Onion. They really did.

    1. It’s not because they cared about the answer. It’s because they wanted to be seen asking the question.

      1. The people who want to see them asking the questions… I’m sorry but these people are morons.

  5. San Fransisco is fucked because it still wants single family residences. Which is crazy in a big city. Even though the single family residences are tiny and narrow (and iconic), it makes no sense when there is no more land to build on. The entire bay area is closely behind. Not enough room left to build more single family residences.

    At some point you have to build multiple, and you have to build up.

    1. San Francisco is on a peninsula and in a very earthquake prone area. So, their ability to build up is more limited than in say New York. Yes, it could be a lot better than it is, but it is never going to be a cheap city to live in until the socialists who run the place finally destroy it.

      1. You can’t get any more “UP” than the new SalesForce tower so I don’t think that’s really an hurdle.

        1. “You can’t get any more “UP” than the new SalesForce tower so I don’t think that’s really an hurdle.”

          That construction is far more expensive (sq. ft.) than *any* residential unit in the Bay Area.

      2. Until we have a real Reed Richards to generate a sub space rift generator and the accompanying technology to set up housing inside those rifts, housing in CA will be scarce.

        1. In the alternative, we could use Time Lord science. A dimensionayl transcendental housing complex could solve a lot of problems.

        2. What about underwater? It’s way easier than moving to the Moon or Mars. And I recall a documentary from when I was a kid called “Sealab 2020”. Isn’t that from next year?

    2. The vast majority of the land on the Peninsula is environmentally protected. Basically everything from the ocean over to the East Bay, with the exception of the tiny sliver of land we call Silicon Valley. There is plenty of room to build any kind of housing in quantities sufficient to house many hundreds of thousands of additional families at prices far less than what they’re currently paying.

      1. They’re building apartments and townhomes everywhere in Silicon Valley, tearing down old houses or unused single-story office parks. Most of the new apartments are 4 stories tall, with a 2 bedroom starting around 4,000 a month.

        I read somewhere they’ve built like 50,000 new units, but 750,000 new jobs have been created here in the past 10 years.

        1. And a 2-bedroom townhome goes for 1.0 to 1.5 million depending on the location.

  6. But unlike San Francisco (or Los Angeles, or several other major American cities), rental prices in some parts of Sydney are seeing a massive decline—as much as 100 Australian dollars a week in some places.

    Australia has been experiencing a massive real-estate bubble due to government market distortions and it is showing signs of bursting. I’m not sure that that’s a good free market example of supply and demand at work.

    1. A debt driven real estate bubble that is driving prices down?

      1. A debt driven real estate bubble has created an oversupply of housing (as people buy “investment properties”) and that is driving rental costs down. Eventually, home values will collapse as well.

        1. Rental and ownership prices are highly correlated

          1. They are, in the long run. But when real estate bubbles occur, they can diverge sharply in the short term.

      2. think commercial real estate bubble and abandoned shopping malls.

  7. So what is the actual cause here?

    From the linked article, the actual cause seems to be that actual construction has been high for awhile but only in the last year or two investors have pulled out of the speculative/quick churn market (which would incentivize them to keep units empty) and are instead renting them out. So actual supply-for-rent has finally gone up where before it was supply-for-specinvestment.

    Regardless, I doubt it has any lessons that CA can adopt – cuz the OZ market is based on a lot of volume (prob too much) where CA is based on an absence of volume.

  8. “It’s because Sydney’s seeing a building boom.”

    Supply and demand. Obey it, it’s the law.

  9. First, there is no “housing crisis” in San Francisco, no more than there is a “housing crisis” in Malibu; more people want to live there than can be accommodated, hence housing is expensive compared to other locations. That’s ‘the market’, not ‘a crisis’.
    Nor are houses ‘over-priced’ in San Francisco; every single one which goes up for sale sells. ‘Nuff said.
    While housing is restricted by some government regulations, it is not the government’s duty to make sure anyone who wants to live here can do so, and I doubt that removing most all the restrictions would lower housing costs by anything like Sydney’s. While the area is widely un-developed, the same can’t be said of the limited space within San Fran.
    Rents are higher than the market would deliver; blame rent control and rent control only.

    1. It always comes down to progtardation run wild.

    2. Yes, I very much doubt that rents have gone down much in Sydney’s Northern Suburbs or the waterfront areas on the south side of the Harbor. Those areas are already built out.

      OTOH in the western suburbs there is not much of a limit.

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  11. Why not the other option of lower demand? Why does everyone have to live in one place? If people cant afford to live in SF, move. Personally I dont want to live with 18,000 people per square mile.

  12. A huge speculative boom preceding a crash and economic depression (ala US in 2003-6) is typical characteristic of boom bust cycles..To present this is a good thing is frankly bizarre.
    It’s a silver lining, on a very large and ominous thundercloud. Yes rents are pulled down somewhat by this oversupply and malinvestment (build quality is also being revealed as terrible), another reason rents are down is wages are flat because Australia is technically already in a per capita recession.
    Prices in Oz peaked 2017 and have fallen considerably in Sydney and Melbourne, now the desperate Liberal government are effectively giving the green light for more mortgage fraud (already touched upon by the Royal banking commission) by cutting lending standards and pulling interest rates down 0.5% (two things it was claimed would never happen).
    Within 6-12 months or so it will become clear whether the Ponzi scheme has been kept afloat for another cycle – the coveted ‘soft landing’, which I very much doubt considering the amount of supply still coming into the market and a host of other factors internal and global, if not then falling prices will mean construction will grind to a halt and eventually rents will rise again just as they did in the US after the GFC.

  13. All the overpriced cities need to do what Minneapolis did, which is eliminate single family zoning. They should eliminate zoning PERIOD, but that’s a good amount of rights given back to property owners in and of itself.

    If you want perpetual SFH neighborhood, move where there is an HOA of some sort! Otherwise people should be free to build whatever the hell they want on their property.

    If SF, Seattle, NYC, etc did this, their housing problems would be over in like 5 years.

  14. […] “Sydney’s rental prices are declining because it’s seeing a building boom. The size of Sydney’s apartment market has doubled in two years, and landlords have had to drop rents in order to get tenants.” [Scott Shackford, Reason] […]

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