Rental markets remain tight but there are emerging indications of a shifting landscape

Key takeaways

Rental markets have shown glimpses of relief in recent months, with rental vacancy rates remaining relatively unchanged in May, but still at a low level of 1.42% nationally.

Over the past quarter, vacancy rates have increased by 0.09 percentage points, marking the most significant easing in rental market conditions since the early stages of the pandemic in November 2020.

Despite theserecent improvements, the national vacancy rate is still almost half (-46%) of pre-pandemic levels and down 0.19 percentage points compared to May 2022.

Rental prices have seen a significant increase, with median advertised weekly rents for houses rising by 31% and units increasing by 20% since March 2020.

The supply of available rentals remains a major issue, with 30% fewer rentals on the market compared to the start of the pandemic. Hobart and Canberra are the only markets where rental listings are higher than pre-pandemic levels, indicating a more balanced market in these areas.

Adelaide and Perth have the tightest rental conditions, with vacancy rates below 1% and properties leasing out very quickly.

There has been a shift in pressure from regional areas to capital cities, driven by increased demand from overseas migration, universities returning to face-to-face studies, and a resurgence of city living.

Despite the persistently tight rental markets, there have been glimpses of relief for tenants in recent months.

According to the latest PropTrack data, rental vacancy rates remained relatively unchanged in May, down just 0.01 percentage point (ppt) to sit at 1.42% nationally.

However, looking at the past quarter, vacancy rates have risen by 0.09ppt, which, while only a small move, represents the most significant easing in rental market conditions since early in the pandemic in November 2020.

But despite this mild increase in available properties for rent, the national vacancy rate remains almost half (-46%) pre-pandemic levels and down 0.19ppt compared to May 2022.

Ms Eleanor Creagh, Senior Economist at PropTrack explained:

"Despite recent increases, the national vacancy rate remains almost half (-46%) pre-pandemic levels and down 0.19ppt compared to May 2022.

Though signs of improvement are undoubtedly good news for renters, conditions are still tight and it is difficult for many to find rentals.

Conditions also remain a lot tougher than three years ago at the pandemic onset, as evidenced by a nationwide surge in the cost of renting."

Rental markets have been really tight, causing a big jump in rental prices

Since March 2020, the median advertised weekly rents for houses have shot up by 31%, and units have increased by 20%.

In the past year, rents have increased by 11% for houses and 14% for units according to PropTrack.

Ms Creagh further explained:

"With net inflows from overseas migration and student arrivals remaining elevated, there is little indication of rental prices stabilising or going backwards.

However, if vacancy rates continue to hold steady, the pace of rental price increases is likely to slow."

Rental supply is still a major issue

According to PropTrack's data, there are 30% fewer rentals on the market compared to the start of the pandemic.

Obviously, the solid demand for rent is persistently outpacing the supply of available rentals.

Ms Creagh said:

"The only real solution to the rental crisis is an increase in the supply of available rentals.

Looking at total rental listings there has been some reprieve.

Total rental listings nationally are at their highest point since August 2022 and are up from record low levels in every capital city.

The easing in vacancy rates in the past quarter has likely been driven by more rental properties being brought to market.

Even so, total rental listings remain very constrained in most markets."

Out of all the markets, Hobart and Canberra are the only ones where the total number of rental listings is higher than before the pandemic hit.

As a result, these markets are starting to find a balance.

In Hobart and Canberra, the demand for rental properties has slowed down a bit, and the pace of rental price growth in the past year is not as rapid as in other capital cities.

Interestingly, the number of days it takes for a rental property to get leased has increased by 12 days in Hobart and 11 days in Canberra compared to the record lows.

This means that properties are staying on the market a bit longer before finding tenants.

On the other hand, if we look at Adelaide and Perth, the rental conditions there are the tightest across the country.

The vacancy rates in these cities are below 1%, indicating a high demand for rental properties.

Additionally, properties in Adelaide and Perth are being leased out very quickly, with rental days on-site averaging just 17 and 16 days respectively.

There is a noticeable difference between the cities and the regions

Over the past year, there has been a shift in pressure from regional areas to the capital cities.

This change can be attributed to increased demand resulting from overseas migration, the resumption of face-to-face studies by universities, and a return to city living.

As a result, rental market conditions have tightened considerably in capital city markets, particularly Melbourne, where vacancy rates are down 0.98ppt over the past year, according to PropTrack.

The good news is that conditions have started to stabilize in the past few months, although they remain at a low level.

For instance, Melbourne currently has a vacancy rate of just 1.33%.

Following closely is Sydney, where vacancy rates have decreased by 0.32 percentage points over the past year.

However, there is some recent improvement in Sydney, as the vacancy rates increased by 0.06 percentage points in May and by 0.16 percentage points in the past quarter.

This could potentially indicate a turning point in the ongoing rental crisis that has been worsening over the past year.

In Canberra, there has been a significant annual increase in vacancies, with a rise of 0.81 percentage points, bringing the vacancy rate to 2.05% - the highest among all capital cities.

These conditions suggest a more balanced rental market for tenants in Canberra.

There is some relief in rental conditions in regional areas, as they have slightly improved.

Overall, rental vacancy rates in these areas have increased by 0.35 percentage points over the past year.

Ms Creagh commented:

"Although conditions have begun to ease, they remain challenging.

The outlook for the rental market is still difficult with net migration set to remain elevated and supply shortages still in play, but there are tentative signs we may have passed through the eye of the storm.

We are seeing fewer sales by investors than we were during the pandemic and beginning to see more new rental properties listed.

That means the available pool of long-term rentals should continue to increase, helping to ease chronic supply constraints.

But at the same time demand to rent remains strong, investor activity is not where it was several years ago, and we have a downturn in building activity.

So, while supply shortages have begun to ease, they are set to remain in play but perhaps to a lesser extent.

It is still difficult for many to find rentals and the reality is that the conditions are a lot tougher than three years ago at the pandemic onset.

In these conditions, we expect rents to continue to grow, placing more pressure on renters.

But the silver lining is that as vacancy rates ease, rental price increases may not be as large as we've seen throughout the past year and overall conditions may continue to improve in the months ahead."

Source of chart 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.