There is currently more pressure on our inner-city rentals due to the opening of our international borders earlier this year.
Net permanent & long-term arrivals, which are a timely monthly proxy for Australia’s net immigration, have surged.
Tenants' conditions remain tough
Home prices are falling around the country on the back of rapidly rising interest rates, but rental prices on the other hand are surging, with conditions for tenants remaining tough.
Ms Eleanor Creagh, Senior Economist at REA shared her insights:
"September saw the strongest quarterly rate of national rental price growth on record, as median weekly advertised rents for all dwellings skyrocketed by 4.3%.
House rents have greatly increased since the onset of Covid, up 19% and far outstripping rent growth for units, which was 8.4%.
This is unsurprising given the preference shifts toward larger homes, with remote working arrangements and lockdowns heightening desires for more space.
This trend has continued throughout the past year, with house rents increasing 11.1% and units just 7.1%.
However, over the past quarter, weekly rents for units have surged in Sydney (up 4.%) and Melbourne (up 5%).
That's much more than the rental price growth rate for houses, as overseas migration and foreign student arrivals rebound."
We're certainly not in a renter's market
While homebuyers have regained the upper from sellers, it's certainly not a renter’s market.
Conditions for would-be tenants are tough, and with strong rental price pressures right around the country, not only is finding a home tough but finding one “in budget” is becoming tougher.
Ms Creagh explained:
"A number of factors have contributed to this record tightness in the rental market, with rents increasing at a fast pace due to the constrained supply of available properties alongside increased demand.
Now adding to demand pressures is the strong rebound in net overseas migration and international student arrivals.
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The number of highly engaged potential renters per listing on realestate.com.au in Melbourne's city region has more than doubled in the past 12 months, with parts of Sydney also seeing large growth.
That increased demand for rentals has collided with an extreme shortage of rental stock, with total rental listings nationally now more than a third lower than pre-pandemic levels.
Population flows and preference shifts are evident in rental price pressures, alongside extremely tight supply.
Over the past year, rents have increased the greatest for four-bedroom houses (up 12%), five-plus bedroom houses (up 11.4%) and one-bedroom units (up 11.1%).
Both Sydney and Melbourne are seeing demand for smaller units rise, with Sydney rents continuing to surge in the September quarter for one-bedroom units (up 6.7%) and two-bedroom units (up 6%), along with one-bedroom unit price increases in Melbourne of 6.1%."
Is there relief in sight for renters?
Investor activity has increased from Covid lows, according to the new lending data released by the Australia Bureau of Statistics, but has slipped again recently as interest rates have quickly risen.
Ms Creagh commented:
"Current investor activity is unlikely to be at a level to significantly increase the supply of rental stock.
With net migration continuing to rebound, without a meaningful increase in rental supply on horizon, it doesn’t look like price pressures will ease in the capital cities anytime soon."
Soaring rents have a significant impact on household balance sheets
The pace of rent price increases may slow as tenants face budgetary constraints, with the cost of living increasing and pushing some back to larger households via shared living arrangements, perhaps easing demand pressures somewhat.
Ms Creagh said:
"Increasing the pool of long-term rentals via increased investor activity and build-to-rent projects could help alleviate the supply crunch.
The good news is rental yields are increasing and with the pace of price growth slowing and rent price growth remaining strong, are set to continue to do so."
Source of charts and commentary: REA Insights
