Tag Archives: landlord

australian interest rates and rent increases

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I was having a discussion with a colleague today about how the big banks are continuing to raise their interest rates regardless of what the RBA does, including ANZ who raised theirs today to 9.62 % p.a.

He was of the opinion that the interest rate rises are small in comparison to how much rents are increasing. I told him it wasn’t so but he just thought that I was trying to bend statistics to suit myself.

So I thought I would follow up here on a post from this blog from November 2007 where I showed the current ANZ interest rate and how much it would have cost to borrow money for our apartment compared to renting it. Back then, with interest rates at 8.32 % p.a. the weekly repayment would have been $956.06. Now, at 9.62 % p.a. it’s $1074.19 per week. That’s an increase of $118.13 per week.

Now look at our rent situation. Last October we signed a 12 month fixed term lease at $420 per week. So last November we were paying $420 per week, and right now we are paying $420 per week. That’s an increase of $0.00 per week.

To be fair, we were clever to lock in the rent we did when we did. But even if the landlord raises the rent $50 per week come November 2008, he will still be at least $70 per week worse off compared to a year ago, not even considering that Brisbane City Council inner city rates rose by up to 20 % recently.

And if anyone still thinks that rent money is dead money they should know that total repayments for our apartment at current interest rates total $1,675,736 (yes, that’s $1.675 million!) and interest alone is $1,125,736. Now that’s dead money!

I can’t see how it’s not clear.

the hungry hungy landlord

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The unit that we rent was recently sold, albeit slowly and after many frustrating rental viewings. We’re under a fixed term lease until the end of October, so, although we have a new landlord, our lease remains intact.

This week we received a note from the our new landlord; who I will refer to as The Man. He suprised us by saying that come lease renewal time (end of October – about five months away) he is going to increase the rent by $50 per week to, quote, “market value”. The Man is such a hungry hungry landlord.

I have a few issues with The Man’s actions, these being:

  • He doesn’t know the value of having good tenants. The onsite manager said The Man would prefer to get more rent from 3-4 overseas students who will share the unit, than slightly less rent from us, a dual income couple, both with full time jobs, who have lived in the unit for the last 2.5 years and have always paid the rent on time and kept it immaculate. The students usually stay about 6-12 months whereas we will probably stay a few years.
  • He doesn’t realise that his plan may backfire. If the apartment is empty for just a few weeks then his weekly rent increase has been entirely lost and he is no better financially off than if he didn’t raise the rent so dramatically in the first place. If he gets a bad tenant it takes a lot of time, and money, to evict the tenant and get another new tenant.
  • He is doing Australian society no favour by investing in existing real estate. Unlike actually investing in real estate by building new housing, he is instead using negative gearing to speculate on future price increases of existing housing. This simply adds to real estate demand and increases housing prices. Struggling first home buyers are being gazumped by cashed up hungry hungry investors like The Man. It doesn’t help that the government encourages him to do this: he pays no land tax, can claim all his rental expenses and shortchange on tax, and then he receives a generous capital gains tax concession!

It is a sad day in Australia, as we are now at a point where current and future generations will not only find it increasingly difficult to buy a home, but to rent one as well! And it’s not at all being helped by the actions of my hungry hungry landlord, known as The Man.

Update (10 June): Here is a link to an excellent article that explains the difference between investment and speculation.