Rents hit record highs as crisis only goes from bad to worse

Signs that the pace of rent growth was slowing have gone out the window.

From outer suburban price squeezes to high income families driven into the rental market through housing unaffordability, there’s little respite at either end of the market.

The median weekly rent value across all Australian dwellings has hit a fresh record high of $627 per week, and rental costs range from $770 per week in Sydney, to $547 in Hobart.

Rent price growth re-accelerated most strongly in greater capital city areas within 30-40km of city centres.

At the same time, higher income households are far more prevalent in the private rental market than they have been historically. New research from the Australian Housing and Urban Research Institute (AHURI) showed higher income earners (with annual incomes of $140,000 and above per year) grew from 8per cent of the private rental market in 1996 to almost a quarter (24 per cent) in 2021.

High income earners are now squeezing lower income earners in the rental market, highlighting the urgent need for more affordable housing.

In the outer suburbs, renters are finding it tougher than ever.

In Sydney, this included Campbelltown, where annual growth went from 9.1 per cent in October to 13.4 per cent in the year to April. A Brisbane example, Jimboomba, saw annual rent growth go from 3.8 per cent to 6.4 per cent in the same period.

Casey–North in Melbourne is also within the 30 to 40-kilometre arc, with annual house rent growth going from 11.7 per cent to 13.1 per cent in the same period.

While these outer-suburban markets are seeing the most rapid re-acceleration in rents, the pickup in rent growth has been fairly broad-based, with only rent markets within 10 kilometres from city centres showing a consistent easing in average annual growth. Many of these markets are only seeing rent growth ease from a very recent high.

Why are rents so much higher than ever?

Australia’s population growth is fuelling rent increases, with more working age people in the country than ever before at a time when the housing supply-demand imbalance has never been greater.

PropTrack’s Senior Economist Eleanor Creagh said more than 80 per cent of population growth is stemming from net migration, which means more working-age adults than it would if growth stemmed from natural increase.

“This means that growth in the adult population is steadily higher than total population growth, leading to a surge in demand for housing.

“Meanwhile the residential construction industry has been challenged by capacity constraints and higher costs, leading to fewer new builds.”

Smaller household sizes during the pandemic resulted in significant additional demand for housing and roughly offset the entire lost population increase across both 2020 and 2021 combined.

“Although recent data suggests that average household sizes (AHS) have slightly increased from the historic lows seen during the pandemic, AHS remains below pre-pandemic levels at 2.5 people,” Mr Creagh said.

“The lasting preference for living with fewer people is continuing to add to housing demand driving up house prices and rents.”

There’s no quick fix in sight for renters, given there is little that can be done rapidly on the supply side.

Any reprieve in the rental market is most likely to come from a moderation in net overseas migration, as some temporary migrants start to depart, and arrival numbers normalise post-Covid.

Centre for Population forecasts indicate this could occur from next financial year. Until then, renters may be seeking more shared accommodation, or exploring cheaper rental markets across the outer metro fringes or regional Australia.

There was some glimmer of hope in April compared to the previous month, with an increase of around 3,000 available properties nationally – albeit from a low base and the market sitting below what’s considered a balanced vacancy rate of 2.5-3.5 per cent. 

Queensland and Western Australia are still experiencing extreme low vacancy rates of less than 1 per cent.

The amount of time rental properties sat on the market lengthened overall by an additional two days, according to Rent.com.au.

This continued an easing trend seen in March 2024. Compared to April 2023, listing time extended for apartments in most metro areas, but houses generally spent less time on market.

Housing targets gone awry

REIWA CEO Cath Hart also said there were some pockets where demand was moderating but the overall rental market remained tough for renters.

“Some Perth agents are reporting a slowdown in demand at the higher end of the market however, it remains strong in the more affordable price brackets.

“We are also seeing some self-moderation of demand, including an increase in tenant household sizes, tenants electing to buy where possible and people simply choosing to stay in the family home longer or moving back in with family to avoid the rental market.

“In what we hope becomes an ongoing trend, supply is getting a boost with some newly built homes owned by Eastern States investors finally coming to the rental market, predominantly in outer-lying suburbs where there has been land to develop.

The rental market is affected by the same conditions as the sales market: strong population growth and low supply which maintain upward pressure on rents,” she said.

The government’s hopes of building 1.2 million new homes over the next five years appear remote.

The National Housing Supply and Affordability Council released their State of the Housing System report on Friday (3 May) and came to the same forlorn conclusion.

The report touted policy initiatives that could lead to an easing of the rental crisis, including increased public housing stock, improving land use and planning systems, boosting building capacity and improving the quality of housing data.

Tim Reardon, Chief Economist, Housing Industry Association, said, “Success is a rental vacancy rate above 3 per cent in every local council across the economy.

“The acute shortage of housing stock has led to rental vacancy rates across the country approaching zero.”