Aussies to face further challenges because of tighter rental markets

The rental markets across the country continue to be tight, with a high demand for rentals that surpasses the available supply.

Consequently, there is an upward trend in weekly rents, and vacancy rates are declining.

The pandemic has exacerbated this situation, with vacancy rates plummeting by 50%, highlighting the severity of the conditions in most rental markets.

Eleanor Creagh, PropTrack's Senior Economist said:

"There are several factors that have contributed to what are now incredibly challenging conditions for renters.

The shift to smaller household sizes with the accelerated adoption of remote work and changing lifestyle trends reduced investor activity and more investor sales amid strong capital gains, and the ongoing boom in international arrivals have all played a part.

Renters are faced with limited choice, fierce competition, properties being leased at record speed and higher overall rents."

Regions where demand for rentals is still surging

As we're on the third anniversary of the pandemic, we observe a reversal in rental demand, with people moving back from regional markets to the cities.

While there has been a significant reduction in price pressures from the record levels observed in most regional markets, demand remains robust, and vacancy rates have recently risen due to fewer people relocating from urban centres.

In contrast, the rental markets in capital cities continue to witness a surge in demand and prices, with homes being more difficult to find in urban areas than in regional locations.

According to realestate.com.au data, rental demand has risen significantly in the inner and middle rings of Sydney and Melbourne, as measured by the number of potential renters per listing.

This trend is especially pronounced for unit rentals, indicating that these markets continue to be fiercely competitive.

Over the past year, the most competitive regions for renters have experienced demand that more than doubled, as seen in year-on-year growth in the number of potential renters per listing.

These highly competitive regions, such as Canterbury, Merrylands-Guildford, and Stonnington East, are home to suburbs where weekly rents have surged by nearly 50% in the past year.

This translates to an increase of more than $200 per week in rent.

While there hasn't been an explosive surge, demand for renting a house has also increased in the past 12 months, with Sydney and Melbourne remaining the hotspots for this surge in demand.

Ms Creagh commented:

"Houses experienced very strong demand and price growth through the pandemic period and continue to experience much lower vacancy rates, indicating it's much harder to find a house to rent.

Combined with the historic rental price growth these factors are likely incentivising renters to look for more affordable options across unit rentals."

The rebound in international migration and a rise in student arrivals are additional factors contributing to the strong demand for rental properties in capital cities.

Net permanent and long-term arrivals, which serve as a more current proxy for official migration data, suggest that net migration is expected to exceed the forecasts made by Treasury.

Newly released data from the Australian Bureau of Statistics (ABS) indicates that the net inflow of international students in February 2023 was almost 120,000, with a steady increase following the hiatus caused by the pandemic.

According to the Home Affairs Department, the number of international students applying for visas remains at record levels.

The lifting of COVID-zero restrictions in China and the Chinese Government's requirement for students to resume in-person learning is expected to further boost the influx of students from China.

The rental market is facing challenging conditions due to increasing price pressures.

In February, the proportion of properties listed for rent on realestate.com.au for less than $400 per week decreased to a meagre 17.6%, which is the lowest it has been since late 2018.

Although rental price growth has eased from previous record levels, advertised rental prices continue to be robust in most parts of the country.

However, unit rental markets in Melbourne and Sydney are still holding just shy of record annual price growth as of February 2023.

What’s next for rental markets in 2023?

The rental market is facing a challenging situation as the heightened demand for rentals clashes with an acute shortage of rental stock.

Some parts of the country are experiencing the lowest total rental listings since the early 2000s.

Despite rental price growth slowing down from record levels, the rate of increase is still high, especially for apartment rentals in Sydney and Melbourne.

Ms Creagh shared her insights:

"Increased activity from investors will help but won’t be enough to match the level of demand in capital city markets.

This is particularly the case in Sydney, Melbourne and Brisbane, where most arrivals' first land and rental supply remains tightest.

The rental stock also remains particularly tight in Perth, the tightest rental market in the country, with total rental listings now 60% below pre-pandemic averages.

Without a meaningful increase in rental supply, there is seemingly no release valve to bring reprieve for renters.

As a result, rental prices will continue to grow in the coming months bringing more challenges for renters.

There is no easy fix or silver bullet to address the challenging rental market conditions so many Australians face.

In the long run, the best solution is to provide more dwellings, but this takes time."

Boosting the pool of available long-term rentals could be achieved through increased investment activity by both small and large-scale investors.

While this won't address the current pressures and low supply of rentals, developing the build-to-rent sector could help to enhance rental supply in the long run.

Encouraging more people into home ownership could also help ease some of the demand burdens on rental markets.

Additionally, increasing funding and investment into social and affordable housing, and providing stable and secure housing options for those in need could also help.

However, one of the quickest solutions to ease the burden of price pressures for vulnerable lower-income renters would be to expand and increase Commonwealth Rent Assistance.

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.