Housing demand surges as rental shortages intensify

Australia's rental market faced a challenging year, becoming even tighter due to consistently high demand and a shortage of available rentals.

In fact, new PropTrack data shows the national rental vacancy rate hit a new low in October after falling 0.06 percentage points (ppt) to just 1.02%.

Ms Eleanor Creagh, Senior Economist at PropTrack said:

"This record low vacancy is a long way from what we typically see as “normal conditions” in the 2-3% range or the pre-pandemic rate of 3.3%, illustrating the critical shortage of available rentals and tough conditions many are experiencing."

Since late 2021, rental market conditions have tightened considerably in city markets

PropTrack's data further show that rental conditions in Sydney deteriorated further in October, with vacancy sliding 0.08 ppt to a record low of 1.11%.

Vacancy in Melbourne also hit a record low, falling 0.06 ppt to 1.09%.

Meanwhile, vacancy rates remain below 1% in Brisbane, Adelaide and Perth.

In October, Queensland had a record-low rental vacancy rate, and Brisbane faced a scarcity of available properties, dropping to just 0.87%.

Perth maintained its vacancy rate below 1% for 15 consecutive months, decreasing to 0.7% in October.

Adelaide, despite having the country's lowest vacancy rate at 0.67%, saw conditions stabilize without further worsening.

According to Ms Creagh, since late 2021, rental market conditions have tightened considerably in city markets that were hit hardest by the pandemic, spurred by smaller households, cities springing back to life and the surge in net migration and student arrivals.

She further said:

"In these tight conditions, with rental markets remaining in crisis mode and continuing to deteriorate, it will be difficult for many to find an available rental and upward pressure on rental prices will remain.

The national median weekly rent has increased by 15% year-on-year, from $480 to $550. Price increases are even stronger in Perth (22% year-on-year), Sydney (18% year-on-year) Melbourne (16% year-on-year)."

Strong price increases mean many tenants are likely to be spending an increasing portion of their income on rent

According to PropTrack, with strong rental price increases the share of affordable rentals has dwindled.

In fact, in October, only 11% of rental listings were listed for less than or equal to $400 – though there are even fewer in the capitals.

In Sydney, just 4% of rentals were listed for less than or equal to $400 in October.

As affordable rental options dwindle and rents rise, many renters are opting for shared housing due to increased competition.

A recent survey by Flatmates.com.au, involving over 10,300 respondents nationwide, highlights the effects of the rental crisis and the ongoing strain of living costs on Australians.

Nearly half of the respondents, comprising both those offering rooms and renters, cited financial constraints as the main reason for choosing shared accommodation, as they found it challenging to afford living on their own.

Ms Creagh commented:

"While shared housing is typically popular amongst younger demographics, the number of older Australians seeking shared accommodation is also on the rise.

Members aged between 55 and 64 years old were the fastest growing demographic on Flatmates.com.au in the past year, recording a 21% annual increase.

Lifestyle change, marriage breakdowns and retirement are likely to be some of the drivers of the increasing number of older Aussie’s seeking shared accommodation.

But it’s also illustrative of the critical state of the nation’s rental markets, with strong demand outstripping rental supply, resulting in increasing rental price pressures, properties leasing quickly, and tenants likely spending larger share of income on rent."

Extreme tightness in the rental market is shining a spotlight on the current housing shortage

According to Ms Creagh, the good news is investor activity has picked up, but unfortunately, demand to rent remains well above pre-pandemic levels, vacancies are historically low and growth in the supply of new housing is limited at a time when there is already a shortage.

She commented further:

"Rental supply is the critical fix here, but a slowdown in building completions amid strong population growth and smaller household sizes means a reprieve for renters is unlikely to be on the horizon.

While conditions are expected to remain tight without a meaningful increase in the supply of available rentals, the silver lining is that conditions may not continue to deteriorate at the pace of the past 18 months."

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.