Rental crisis deepens as available properties halve
A lack of new supply and further population pressures point to a sustained rental crisis across Australia, with fewer properties available for rent every month and property affordability still a major issue for many prospective buyers.
Australia’s rental crisis is only getting worse, with 54 per cent fewer properties available nationally compared to the height of the pandemic in April 2020.
While Sydney lays claim to the most expensive rental market ($700/week average) and Melbourne room prices jumped 22.2 per cent in the year to 1 September, the lack of available rental properties was starkest in Western Australia, South Australia and Queensland.
With housing in such short supply, there seems little cause for optimism that the situation is going to be resolved any time soon.
Between 2011 and now, more than the country’s population has increased by more than four million people.
Weekly rent listings peaked in mid-2020 when migration had ground to a halt.
But the latest arrivals and departures figures suggest a very sharp rebound in the number of new entrants to Australia, the majority of whom will be renters, so it’s inevitable that there will be further pressure on the rental supply.
BuyersBuyers CEO Doron Peleg said that there has been a recent shift in demand back towards the two major capital cities, which has taken some pressure of a number of regional markets.
“There has been a slight shift in the demand away from some regional markets back to the largest cities, as the restrictions on movement have eased, and the drop in rents in the CBDs has helped landlords to find tenants in the previously vacanct inner city units,” Mr Peleg said.
“However, in aggregate the pressures on the rental market continue to grow.”
Even with closed borders and no overseas migrant arrivals for more than two years, Australia's population has continued to grow.
“With population growth likely to increase back towards 1.5 per cent per annum, that’s an extra 375,000 heads to provide accommodation for each year,” Mr Peleg said.
“Unfortunately in the current environment many landlords are likely to sell, further depleting the rental stock, and this will see asking rents continue to rise.
“As in some other countries, the increased use of short-term rental outlets such as Airbnb and other privately owned websites run may also have decreased the available rental supply advertised through the traditional real estate portals,” Mr Peleg said.
Rent.com.au CEO Greg Bader said renters will likely be renting for longer than would have been otherwise expected.
“Higher interest rates are reducing the buying power of those looking to transition from renter to owner,” he said.
“A rough combination of increasing rental demand and insufficient rental supply has created an acute rental shortage, and it's not improving.”
“We're talking rising rental costs and low availability – and it's a mix that's leaving some in impossible situations and many forced into homelessness, which is a dismal reality for those most affected.”
Where are rents rising?
Based on Rent.com.au median rent data, the most affordable metropolitan capital was Adelaide, where apartment rents were $395 a week. Darwin was one of the few capitals to record a significant increase in median apartment rents month-on-month, rising 6.3 per cent to $500 weekly.
Apartment rooms today cost 14.3 per cent more on average than they did 12 months ago, with the steepest of all changes recorded in Melbourne. The price per room metric provides an alternate perspective on the cost of renting space within a property in Australia.
Canberra also recorded an annual jump of 21.4 per cent, bringing the price per room for the ACT capital to $420 a week. A room in a Canberra apartment will set renters back $420 a week (up 21.4 per cent month-on-month) – the most expensive of all metro areas in August 2022.
Room prices in Perth apartments rose for the third consecutive month, up 7.1 per cent to $250 a week in August.
Rents were up 1 per cent across Australia's regional areas in August.
Jim Malamatinas, Director and Head Buyers Advocate, A Game Property Advisory, said the vacancy rate in Melbourne is dangerously low and highlights the ongoing risk to renters and first home buyers.
“Renters will struggle find any relief unless there is more supply in the market, which does not seem to be coming in the immediate future,” he said.
“Inner City Local Government areas with even lower vacancy rates of less than 1% include the City of Stonnington (comprising the inner south-eastern suburbs), Yarra City Council, the eastern suburbs' City of Boroondara and Bayside City of Kingston, which are very desirable areas to live.
“Outer city local government areas with similar vacancy rates also include eastern and north eastern Knox City Council, Banyule City Council, Whitehorse City Council and the city of Whittlesea in the outer northern suburbs.
“The problem is further exacerbated in units compared to houses given that they are a more affordable option, however, given the low level of building approval volumes over the last 24 months and the red tape in the building approval process, their needs to be government intervention to help remove the red tape for private developers, build to rent projects, and private investors,” Mr Malamatinas said.
According to the Regional Movers Index, created in partnership between the Regional Institute of Australia and the Commonwealth Bank, the number of people moving from cities to the regions fell by 16.5 per cent from June to August.
However, the level of net migration is still more than pre-pandemic regional migration numbers. In Victoria, Moorabool, just north of Geelong, was one of the top five Local Government Areas to see a growth in migration.
Economists say housing remains a significant issue. Much of the recent regional growth has been in the areas adjacent to the major capital city boundaries.
In August, regional Northern Territory led the pace of growth, recording a month-on-month increase of 7.8 per cent to $550 a week. Increases were also recorded in Western Australia (up 4.3 per cent), South Australia (up 3 per cent), Queensland (up 2 per cent) and Victoria (up 1.3 per cent).
Canberra houses stayed on the market the longest in August, averaging 23 days listed on Rent.com.au before leasing. Annually, the most significant change was recorded in Brisbane, with apartments leasing 38 per cent quicker than in August 2021.
Land tax impact
The Real Estate Institute of Australia (REIA) has slammed the Queensland State Government’s proposal to introduce an annual tax on investors who own property outside of Queensland, saying it would be another knife in the rental market.
REIA President, Mr Hayden Groves, said the proposal shows a total lack of understanding of the private housing market and the important role investors play in providing homes for millions of Australians.
Mr Groves said the Queensland changes to land tax will urge investors to quit their property assets in that state and look elsewhere to invest.
“It is astonishing that policy makers still don’t seem to understand that rental market challenges derive from supply shortages not greedy landlords.
“Landlords are responding to the market conditions and they cannot artificially create a parallel market, just like petrol prices or that of lettuces,” he said.
“You cannot treat investment in housing differently to that of other asset classes without significant consequences.”
Lack of incentives
BuyersBuyers co-founder Pete Wargent said that rental market pressures are not the result of any one policy, but the combined result of multiple factors.
“It’s the death of a thousand cuts for many small landlords at the moment, for example, landlords in Canberra have already faced adverse changes to property taxes in recent years, and now they’re dealing with new laws on sustainability related to appliance energy use, in addition to the other tenancy reforms.
“In this context it’s not hard to see why a landlord might opt to sell up and move into an asset class where the goalposts aren’t continually moving.”
“Adelaide has had a rental vacancy rate as low as 0.3 per cent which is about as unhealthy a market dynamic as we’ve seen in a capital city in Australia, although arguably Hobart has been even worse in this regard.”
“Unfortunately with non-resident buyers also taxed out of the market there doesn’t seem to be any respite for rental supply on the horizon, with asking rents in Brisbane up by 21 per cent over the past year, in Sydney by 20 per cent, and in Adelaide and Melbourne by 18 per cent,” Mr Wargent said.
“There’s no easy fix, but a useful start would be bringing the serviceability buffer back down from 300 basis points in September.
“After the next interest rate hike the lending assessment buffer in place will be effectively stress testing for a scenario that financial markets see as remote.”