According to PropTrack’s latest rental report, the total number of properties advertised for rent on realestate.com.au fell by 8% month-on-month in September 2022 to be 20.5% lower year-on-year.
Rental listing volumes were the lowest they’ve been since mid-2003 and were 32.5% below their decade average.
This took the volume of listings 27.9% below their decade average.
Across regional markets, total rental listings fell 6.1% in September. They were only 0.1% lower year-on-year but remain well below (-44.3%) their decade average.
Unsurprisingly, the number of new listings also dropped over the period, with new listings down 10.4% month-on-month and 7.1% year-on-year.
Interestingly, the data also shows that Australia’s tight rental market appears to be shifting back to major cities, suggesting that many who fled to regional Australia during the pandemic have begun to migrate back to the cities, along with a sharp uplift in international migration.
Australia’s most major capital cities have seen the biggest drops in rental supply over the past year, with declines of 32.8% in Melbourne, 24.2% in Sydney, and 22.7% in Brisbane, PropTrack’s report shows.
Meanwhile, the largest uptick in rental supply over the year was recorded in Canberra (30.2%), regional Tasmania (14.4%), and regional New South Wales (11.1%).
”Over the past six months, we have seen the strength in the rental market shift from regional areas to capital cities as supply in major metropolitan areas tightens and rent prices climb,” report author and director of economic research Cameron Kusher said.
“These trends look set to continue, with more renters arriving in capital cities, both from overseas and interstate.
This comes as people return to cities after moving away over recent years, fewer people shift regionally, and more renters seek to become homeowners.”
He added that the tight rental supply looks set to persist, pushing the cost of renting higher and making it more difficult for tenants to find accommodation.
However, it is worth noting that although rental price growth has been strong nationally, the cost of renting in Sydney and Melbourne has been largely unchanged since the start of the pandemic.
This likely gives those markets some scope for significant rental increases as supply tightens and demand increases even further.
The tightness in supply is also evident in the national rental vacancy rate, which was recorded at a record low of 1.6% in September 2022.
The house rental vacancy rate sat at 1.1%, slightly above its historic low while the unit rental vacancy rate was 2.5%, a record-low, the data shows.
The regions with the lowest rental vacancy rates in September 2022 were Adelaide, regional SA, Perth, and Hobart (all 0.9%).
The highest rental vacancy rates were found in Melbourne (2.1%), Darwin (2%), and Sydney (1.9%).
The 2020-21 property boom saw many investors offload their properties to take advantage of booming prices, but now, with fewer investors owning and buying homes, the tight supply of rental properties combined with strong demand is continuing to put pressure on prices.
Median weekly combined rents increased 4.3% over the September quarter - which is the fastest quarterly pace of growth on record.
Year-on-year rental prices have increased by 10.3%, which is the strongest growth witnessed in seven years.
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Rental price changes also reflect an uptick in demand for city locations.
Capital city house rents rose 4% over the quarter and unit rents were 2.2% higher while in regional areas, house rents increased 2.2% over the quarter, while unit rents were unchanged.
For the year-on-year data, every market has recorded growth in excess of 5%, reflecting the limited supply of rentals and the ongoing strong demand across the board.
Brisbane saw the strongest rental growth over the past year in Brisbane (14.1%) and regional Queensland (12.9%), likely due to the sea-change trend and pandemic lockdown driving record numbers of people north in search of more affordable property, and looser lockdown rules.
Australia’s property prices may have fallen from their peak, but the surge in property prices during the property boom (which was far stronger than the increase in rental prices) has pushed rental yields downwards.
In September 2022, gross rental yields nationally were 3.8% compared to 4.1% a year earlier.
Gross rental yields on houses fell to 3.5% in September 2022 from 3.9% in September last year.
Unit yields were unchanged at 4.2%.
By city, the lowest gross rental yield for the year was recorded in Sydney at 3.3%, followed by Melbourne at 3.5% and regional Victoria at 3.9%.
The highest yields were found in regional Western Australia (6.8%), Darwin (6.2%), and regional South Australia (6%).
“Mining and resource sector markets continue to have the highest rental returns, while Sydney and Melbourne and their surrounding locations overwhelmingly have the lowest rental yields in the country,” Kusher said.
“With property prices expected to fall and rental markets anticipated to remain tight, it’s likely that rental yields will rise over the coming year, as we’re already witnessing in unit markets.”
Also exacerbating our rental crisis is the low level of investor lending.
PropTrack’s data shows that in August 2022, new lending to investors was $8.9 billion, the lowest value since June 2021 and 23.9% below its recent peak.
In fact, the share of overall lending to investors still sits below its long-term average, as it has consistently since mid-2017.
This means that fewer investment properties are being purchased, which is putting additional pressure on existing supply challenges at a time when demand is rising.
To ease these tight conditions, Australia’s rental market needs either reduced demand through more first-home buyer purchases or increased supply through more investor purchases… or a combination of both, Kusher argues.
The share of lending to investors is trending lower and while there is some supply coming via build-to-rent, this will be outweighed by the demand uptick resulting from the re-opening of our international borders and the decline in first-home buyer activity.
“These demand and supply issues can be addressed, but none of these factors appear set to change in the near term, which means a further tightening of rental supply and increases in rental costs seems likely,” he said.
It’s a tumultuous time for Australia’s rental market as the imbalance between supply and demand, which looks set to worsen going forwards, continues to put the market in a pressure cooker environment.
It’s important to remember that while property investors can look forward to rising rental returns, an investors’ future income will be dependent upon their tenants' ability to keep paying higher rent over the years.
After all…your future income will be dependent upon your tenants’ ability to pay you increasing rent over time.
That’s why it’s important to own properties in the right suburbs - those where the tenants will be able to afford higher rents over time rather than suburbs where the tenants are only a week or two away from going broke.
In general, these will be locations where tenants are aspirational and have a good income, and are likely to have increasing income over time so they can pay you more rent.