Rental crisis as national vacancy rates hit 16-year low
Rental crisis as national vacancy rates hit 16-year low
As Australia begins to work through its recovery from the pandemic, it does so facing a national rental crisis.
Throughout the country, most capital cities are confronting a rental market saddled with acute affordability, vacancy and supply challenges.
Rents rose nationally by 11.9 per cent over the last two years of the pandemic, while gross yields fell to record lows, according to the latest data released by CoreLogic.
However, while the state of the rental market isn’t great for renters, investors in Darwin, Perth and Adelaide are rejoicing with the highest gross rental yields in the country.
Investors have also been buoyed by SQM research showing that with Australia’s national vacancy rate sitting at a 16-year low, rental prices are likely to continue their upward trajectory.
Louis Christopher, Managing Director of SQM Research, shared his concerns for the state of the nation’s rental market.
“Given a dramatic tightening in vacancy rates, we are seeing an ongoing acceleration in weekly market rents across the capital cities.
“This situation now represents a significant rental crisis across the country.”
It is hoped a federal inquiry into housing affordability will address the supply issues that are compounding the rental crisis.
Property Council of Australia Chief Executive Ken Morrison said the report lays out some common sense solutions to dealing with the “complex and wicked problem” of housing affordability.
“The report recognises the potential of build-to-rent housing to provide quality rental accommodation and an additional form of housing supply and we support the recommendation to have Treasury conduct a further detailed review into the benefits this could bring.
“It is pleasing the inquiry’s report places such strong focus on making it easier, cheaper and quicker to supply the housing choice Australians want.
“The Property Council believes more could be done to encourage non-government sources of capital into the creation of affordable and social housing – an omission from the report – and we urge policy makers to closely consider the recommendations of the National Affordable Housing Alliance,” he said.
The rental crisis affects around a third of all Australians.
In Australia, 32 per cent of households are renters (2.6 million households in total). Of those (where household tenure was known):
- 26 per cent (2.1 million households) were renting from private landlords
- 3.7 per cent (300,000 households) from state or territory housing authorities
- 1.3 per cent (105,500 households) from other landlords.
Every capital city in Australia has seen a substantial increase in weekly rents over the last twelve months.
Despite an increase of 14.9 per cent in a year, Adelaide remains the most affordable capital in which to rent. A house in the state is currently setting renters back $441 per week. Melbourne wasn’t far behind at $449, followed by Hobart at $484.
Canberra continues to be the country’s most expensive rental market, with weekly rent sitting at $645, followed by Sydney ($579), Darwin ($516) and Perth ($509).
The capital city that had the highest weekly rent increase over the last twelve months was Brisbane, with weekly rents increasing by 19.9 per cent, followed closely by Sydney (17.2 per cent), Canberra (16.5 per cent) and Perth (14.3 per cent).
The high uptake of work-from-home during the pandemic has seen rent increases for regional properties rise at a quicker rate than capital cities. However, it isn’t just the transition to remote working that has impacted the regional property markets.
Nerida Conisbee, Chief Economist at Ray White, said the areas with the biggest increases have been driven by different variables.
“Regional Western Australia has increased by $100 per week over the last 12 months driven by the return of strong mining conditions,” she said.
“The ACT’s strong growth in the government sector has driven Canberra’s rents up by $80 per week.
“Strong population growth in Brisbane and regional Queensland has pushed rents up there by $70 per week and rising wealth has led to Sydney rents rising by $70 per week.”
Yielding to pressure
Darwin, Perth and Adelaide are leading the way with the highest gross rental yields in the country.
Three-bedroom houses in Darwin are sitting at an impressive 5.0 per cent, and 6.5 per cent for all apartments.
Property experts are encouraging investors to purchase property in the Northern Territory's capital before large infrastructure projects kick-off, including the new $1.5 billion high-speed, world-class fibre project, aiming to connect Darwin to every capital city in Australia.
Glenn Grantham, General Manager for Raine & Horne Darwin, shared his thoughts on the future growth of the Darwin property market.
“As we’ve seen with significant infrastructure investments that attract more workers in the past, property prices can jump by 10-15 per cent because of the extra demand created by workers shifting to Darwin to support these projects,” he said.
“Investors can secure properties in Darwin with yields exceeding 7 per cent, and there are more workers flooding into the city and pushing up prices.”
In WA, gross rental yields are in favour of apartments, sitting at 5.5 per cent compared to 4.1 per cent for three-bedroom houses.
Megan Lieu, Economic Analyst at PropTrack, shared her thoughts on the strong rental yields currently generated in the Perth and Adelaide residential markets.
“The Barossa, Yorke and mid north region, just north of Adelaide, and Perth’s northeast and southeast regions also saw a surge in the number of enquiries from investors.
“Situated on the outskirts of their respective capitals, these regions are not only a commutable distance to their CBDs but they offer a nature-bound lifestyle as well and these attributes have driven up rental demand and, in turn, have attracted investors.”
Just like Perth, apartments in Adelaide are delivering the highest gross rental yields for the state, sitting at an impressive 6.6 per cent, while three-bedroom houses are delivering 4.9 per cent.
Lowest rent yields
Sydney (2.3 per cent), Melbourne (2.4 per cent) and Brisbane (3.3 per cent) have the lowest rental yields in the country as of March.
Eliza Owen, Head of Residential Research at CoreLogic weighed in on the cause of the low rental yields across the three capitals.
“Gross rental yields are a portion of the purchase price of a property, and purchase prices of properties have grown 24.6 per cent since March 2020, outpacing the 11.8 per cent rise in rents,” she said.
“Nationally, gross rental yields have fallen from 3.8 per cent in March 2020 to a record low of 3.21 per cent as of February 2022.”