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What is a vacancy rate?
October 21, 2016
Investors and renters alike can use facts and figures to their benefit – provided they know what they’re looking for, and how to use them.
A case in point is the humble vacancy rate, a percentage that is often quoted in the media, yet one that is frequently misunderstood.
So what is a vacancy rate and what impact can they have on you and your living arrangements?
How to understand vacancy rates
When it boils down to it, the vacancy rate is one of the most important figures you’ll take into consideration as a landlord. But this tiny fraction is very meaningful for renters, too, because it essentially acts as a barometer that measures the health of the property market.
The vacancy rate, usually expressed as a percentage, is a very useful statistic that helps property investors and renters alike analyse activity in a given area.
We’ll use a very simplistic example to demonstrate vacancy rates in action to give you a clear idea of how they work.
Let’s say the Melbourne suburb of Fitzroy had 100 rental properties on the market.
Of those homes, 97 were rented out and 3 were vacant. This translates very simplistically to a vacancy rate of 3%.
A low vacancy rate…
Indicates a tight rental market: this means there is strong demand from tenants, and landlords typically don’t need to wait very long – we’re talking a matter of days – to find another person willing to move in when someone else moves on.
Asking rents can quickly skyrocket in this type of market, and as a landlord, you can afford to be more selective about the tenant’s you place in your property.
On the flip side, tenants are in a more vulnerable position; if you are renting a property in a low vacancy environment, it could be in your best interests to sign a longer-term lease, so you’re not facing a ultra-competitive market when your lease is once again up for negotiation.
A high vacancy rate…
Indicates a poor rental market. Most often, vacancy rates are used to determine rental demand and if the vacancy rate is high, that means there is a greater number of homes sitting empty.
In this type of market, landlords may need to get creative, offering a free week’s board or reduced rent, in order to entice someone to move in. Tenants definitely have the upper hand in this scenario, and may be able to negotiate steep discounts.
Now that you know what they are, how can you use the vacancy rate to your advantage?
When you’re about to sign the lease on a new property, whether you’re the tenant or the owner, it makes sense to find out what market you’re competing in. Be guided by your property manager and also educate yourself on current conditions, to ensure you’re leveraging local vacancy rates to your advantage.