As visa applications surge, rental market competition heats up

Boy is competition in the rental market going to heat up.

Especially now that the number of international students applying for visas hit a record high in June as city life and international travel resumed.

According to the Home Affairs Department:

“This is the largest number of offshore applications received in a single month in the last 10 years.

Given the last decade was far higher than the previous decades for international student arrivals, the June figure is set to be an all-time record.

This surge has so far carried through to July, with an average of 10,000 student visa applications a week being received, an almost 40% increase on pre-pandemic levels."

Eleanor Creagh, Senior Economist at REA explained:

"Finding a rental property at the moment is already tough for would-be tenants, with significant competition and little choice.

A surge in international student arrivals is likely to add further pressure to already tight rental markets in Aussie capitals."

The rental market is already tight

This can be seen particularly in the major capitals as people return to cities.

Obviously, we can see an increase in competition and rental price pressures.

In fact, Australia-wide properties are renting faster than ever, and the number of days it took a rental property to be leased after it was listed in July hit a historic low of 19 days according to realestate.com.au

Across the capitals, rental days on site are also at a historic low of 15 days in Brisbane and 21 days in Sydney as a shortage of rental stock bites.

Also, the number of homes available to rent has been trending lower since the pandemic began, and at a national level total rental listings are now almost a third lower than pre-pandemic levels (-31%).

Ms Creagh commented:

"This trend is even more pronounced in the regions, though the number of available rentals has ticked slightly higher in recent months.

But in the capital cities rental supply is also incredibly tight whilst demand is on the rise, with available rentals having fallen most in Brisbane, Adelaide, Perth and Darwin."

Rental competition has increased, even more so for units

At the same time, demand for rent is up, especially in the capital cities and even more so for unit rentals.

That’s especially the case in Sydney, Melbourne and Brisbane.

Rental price increases along with revived city life are likely swaying renters toward the apartment market.

Ms Creagh further explained:

"An analysis of the SA3 regions with the largest year-on-year growth in potential renters per listing reveals that rental competition in parts of Sydney has skyrocketed over the past 12 months with some regions seeing the number of potential renters per listing almost doubling.

Though not making the top 10, competition for rentals in parts of Brisbane like Sherwood, and Nathan have also surged.

Tight supply and hot demand are seeing upward pressure on rents with tight rental market conditions that aren’t likely to ease anytime soon."

On a national level, median advertised rents have increased by 8% in the past 12 months alone, but price pressures are strong around the country.

Suburbs where rents have surged

The following analysis by realestate.com.au of the capital city suburbs where median weekly rents have surged reveals where house and unit rents have risen most as a result of the tight rental market conditions.

With international student arrivals surging, rental demand doesn’t look likely to ease any time soon.

In fact, overseas searches to rent on realestate.com.au have also skyrocketed in recent months, in the last six months compared to the six months prior overseas rental search volumes are up 59% with the borders having reopened.

Ms Creagh said:

"Strong rental demand, a low supply of stock, and the potential for strengthening rental yields is likely to keep investors engaged.

But while investor activity has picked up off Covid lows, it is still nowhere near the level it was at a few years ago, indicating that rental supply could be set to remain constrained."

What's ahead?

Rental markets will likely remain competitive.

As rental price pressures continue in the period ahead, this could increase the attractiveness of buying for some current tenants.

However, prospective buyers not only face higher borrowing costs but have a lot more uncertainty around future costs than those over the past two years, as interest rates are expected to rise quickly in the second half of this year.

The fact that there’s a lot more choice and less competition creates a window of opportunity.

However I believe later this year many prospective buyers will realise that interest rates are near their peak, and inflation will have peaked and the RBA's efforts will bring it under control.

And at that time pent up demand will be released as greed (FOMO) overtakes fear (FOBE - Fear of buying early), as it always does is the property cycle moves on.

We saw an opportunity like this since late 2018 - early 2019 when fear of the upcoming Federal election stopped buyers entering the market. And look what's happened to property prices since then.

I saw similar opportunities at the end of the Global Financial Crisis and in 2002 after the tech wreck. History has a way of repeating itself.

Strategic investors will take advantage of the opportunities our property markets will offer over the next couple of years maximising their upsides while protecting their downsides.

Source of graphs and commentary: REA Insights 

About Leanne Jopson Leanne is National Director of Property Management at Metropole and a Property Professional in every sense of the word. With 20 years' experience in real estate, Leanne brings a wealth of knowledge and experience to maximise returns and minimise stress for their clients.