Rents still increasing at almost twice rate of inflation

The availability of rental properties improved by a tiny fraction in June but rents continue to rise at almost double the pace of inflation.

CoreLogic’s Quarterly Rental Review for Q2 2023 shows the country’s quarterly rental growth trend of 2.5 per cent was in line with the March quarter increase. 

Over 12 months rents have risen 9.7 per cent, compared to Australia’s inflation rate of 5.6 per cent.

Vacancy rates eased marginally in Sydney and Melbourne in June, according to PropTrack data released Tuesday (10 July) but both cities are still challenging places in which to find a rental. Sydney’s vacancy rate inched up 0.05 percentage points (ppt) to be up 0.28 ppt for the quarter, while Melbourne remains at a low level of available vacancies of just 1.40 per cent.

Source: Corelogic.

For renters in Brisbane, things continue to go from bad to worse but Adelaide and Perth renters would still view the Queensland rental market with jealousy.

Brisbane is the only capital still showing worsening rental market conditions, with vacancy rates falling 0.08 ppt to 1.12 per cent in June.

But it’s Adelaide and Perth that continue to see the tightest rental market conditions with the fewest available rental properties, with vacancy rates at a chronically low 0.94 per cent and 1.02 per cent respectively.

Paul Ryan, Senior Economist, PropTrack, said capital cities are seeing slightly more promising rental market conditions, with vacancy rates up 0.17 ppt over the past three months to 1.45 per cent.

“This is the most significant easing in rental market conditions since early in the pandemic in November 2020,” he said.

“Sydney (+0.28 ppt) and Hobart (+0.51 ppt) have seen the strongest increase in rental vacancies over the past three months among the capitals, while Brisbane is the only capital city seeing rental market conditions tighten, with vacancy rates decreasing over the past month and quarter.

“Slowing rental demand has resulted in more rental properties being available for lease but despite the improvements, rental vacancy rates remain low – around half the levels seen before the pandemic – and demand is easing, but still strong.

“It remains difficult to find a rental across the country and we expect rents to continue to grow quickly, placing additional financial pressure on renters,” Mr Ryan said.

National rents are now 27.4 per cent higher since the onset of Covid, equivalent to a $127 per week increase on the median dwelling rent in Australia, according to CoreLogic.

The slight vacancy rate improvement is doing little to ease the pain for renters.

Across the individual capitals, Melbourne continues to lead the pace of quarterly rental growth, with dwelling rents rising 3.9 per cent in the quarter, followed by Perth (3.4 per cent), Sydney (3.2 per cent), Adelaide (2.5 per cent) and Brisbane (2.1 per cent).

Rents across Darwin rose just 0.7 per cent over the quarter, while both Hobart and Canberra saw rents decline by 1.0 per cent.

Melbourne no longer cheapest rent

Adelaide has replaced Melbourne as the country's most affordable rental capital, with the typical dwelling renting for $549 per week compared to $551 in Melbourne.

However, Adelaide could soon lose its new title to Hobart given a gap of just $3 per week separates the cities’ rental markets. Hobart could soon become the country’s most affordable rental capital if Adelaide rents continue rising as Hobart rents fall.

Sydney maintained its position as the most expensive capital for the second quarter in a row, with a median weekly rental value of $733.

Kent Lardner, Founder of Suburbtrends, said their recent analysis of the Australian rental property landscape found Queensland, South Australia, and New South Wales are currently experiencing the greatest rental pressure.

“The significant increase in rental prices over the past year in Queensland (16.3 per cent) is a clear contributor to the heightened rental pain felt by residents

“Similar trends are observed in SA and WA, where rental prices have risen by approximately 16.0 per cent and 15.4 per cent respectively.

“Interestingly, the Australian Capital Territory and Tasmania were found to have the highest average percentage of advertised rentals, suggesting a high turnover of rental properties.

“The ACT also has the highest vacancy rate, with over 2.22 per cent of properties sitting empty for 21 days or more.”

Investors not gaining from rent hikes

Investors paying off higher mortgage repayments every month would be hoping to recoup some of their expenses through higher rents.

But national gross rental yields actually inched four basis points lower over the June quarter, with quarterly value growth (2.8 per cent) now outpacing quarterly rent rises (2.5 per cent).

After expanding 68 basis points between February 2022 (3.2 per cent) and April 2023 (3.9 per cent), national gross rental yields have now fallen five basis points to 3.8 per cent in June.

Source: Corelogic.

The NSW has acknowledged the dire rental market situation warrants special intervention, appointing its first ever rental commissioner. Former Chief Executive of Homelessness Australia, Trina Jones, will work with government to devise a “fairer” rental market.

Tim McKibbin, Chief Executive Officer, REINSW, said CoreLogic figures for the June quarter showed Sydney remained the most expensive market in Australia in terms of rent, as demand rises sharply and total rental supply stagnates at more than 30 per cent below the previous five-year average for this time of year.

“Those who just assume this must translate to landlord profits might be surprised that gross rental yields fell over the June quarter.

“It is a highly concerning scenario for rental vacancies to be so tight, rental supply to be so low, and the relative attractiveness of residential property as an investment to be diminished.

“The solution to the rental crisis must include a plan to address the latter, otherwise supply will remain the core issue driving rents higher.”

CoreLogic Economist and report author Kaytlin Ezzy said the softening in rental growth occurred in spite of an ongoing surge in overseas migration and a continued shortage in rental supply, suggesting an increasing portion of tenants are reaching their affordability ceiling.

“While rental demand from overseas migrants is likely to remain strong for some time yet, particularly across the largest capitals, we’ve already seen a reduction in domestic rental demand via an increase in the average household size.”

With national rents 27.4 per cent higher since the onset of Covid, Ms Ezzy said it’s likely there will be an increase in average household sizes as more renters re-form share houses as a means of sharing the increased rental burden.