Rents going through the roof

Rents at record highs for units and houses, vacancy rates at new record lows, a shortfall of 70,000 rental properties, and no sign of things slowing down in 2023.

For the roughly one third of Australian households that are renting their home or the many more aspiring to do so, the situation has never been so parlous.

The only variable that is seemingly placing any limitation on rent rises at the moment is the sheer unaffordability of rents that have to hit a ceiling at some point before they become literally out of reach as a portion of renters’ incomes.

CoreLogic’s Rent Value Index, released Thursday (5 October), rose another 1.6 per cent in the September quarter.

Although down from the 2.2 per cent rise of the second quarter of 2023, national rents are now a staggering 30.4 per cent higher than in July 2020, adding the equivalent of $137 to the median weekly rent. National rents have now risen for 38 consecutive months.

A lack of rental supply in the marketplace has also led the national vacancy rate fell to a new record low of 1.1 per cent.

CoreLogic Economist and report author Kaytlin Ezzy said there were a number of factors at play driving the slowdown in rental growth amid such limited rental availability.

“Worsening affordability continues to be a significant factor placing downward pressure on the pace of rental growth in recent months,” Ms Ezzy said.

“With the rising cost of living adding additional pressure on renters’ balance sheets, it is likely tenants have hit an affordability ceiling, resorting now to enlarging their households to share the growing rental burden.

“The situation of low rental vacancy rates and insufficient housing supply is broad issue impacting regions around the country to different extents.

“Record high net overseas migration, fuelled by a combination of an increased flow of new arrivals and weaker departure numbers, coupled with a continued shortfall in rental listings, saw the vacancy rates falling to new record lows across both the combined capitals (1.0 per cent) and combined regional markets (1.2 per cent),” she said.

No quick rent fix in sight

PropTrack’s Market Insight Report, also released Thursday, found regional Western Australia, Melbourne and Sydney saw the strongest rental growth over the past quarter, while Hobart, Canberra and regional Tasmania saw the largest falls.

Over the past year, capital city rents rose 12.2 per cent while regional rents were just 6.7 per cent higher.

A third rental market analysis, Domain’s Rent Report September Quarter, found the city outlook is varied, with house and unit rents in Sydney, Melbourne, Brisbane, Adelaide, and Perth at record highs, as well as house rents in Darwin.

Dr Nicola Powell, Domain’s Chief of Research and Economics, said one of the potential driving forces behind the differences between the capitals is the varied supply levels and demographic shifts.

“Our biggest capital cities will see the largest flows of net overseas migration, which, in part, may explain the reacceleration in Melbourne rents.

“Western Australia, Victoria and Queensland have recorded the strongest population growth of all the states and territories.

“These trends led to a shift in the capital cities’ affordability rankings.”

Ms Powell said it was important to recognise that it would be unusual for rent gains to decelerate while Australia’s vacancy rate is at a record low.

“Rental supply has suffered due to the sustained development undersupply and investors selling under holding pressure costs.

“To balance the rental market and achieve a healthy vacancy rate of 2-3 per cent, Australia needs 40,000 to 70,000 additional rentals.

“There is no quick fix to ease the competitive rental market, as many factors are at play.

“Investors are currently reluctant to hold debt with rising costs, as evidenced by the falling annual investor share of new lending.

“Discussions of higher taxes in Victoria and Queensland will only act as a deterrent for future investors who seek certainty.

“For example, the Victorian government is looking to introduce a levy on short-stay accommodation providers from 2025 onward.

“While it might help boost overall supply and raise revenue for social and affordable housing, this could create negative sentiment among investors, discouraging them from entering the rental market even further.

“In a time of increasing demand, policies should aim to encourage investors and not disincentive them.”

PropTrack Director Economic Research Cameron Kusher said rents would likely continue to rise over the coming months, while the difference in price between houses and units would also narrow over the coming months.

“House rents have been unchanged for six months, while unit rents have continued to rise.

“The ongoing rapid rate of population growth, coupled with a persistent reduction in the supply of properties available for rent, have maintained the pressure on the cost of renting, particularly in major capital cities.

“Rental growth is likely to continue in the major capital cities.

“The flatlining of regional rents over the past six months may point to softer rents for the regions in the coming months.”