The changing landscape of Australia’s rental market: will it ever be the same again?

More than three years have passed since the World Health Organisation declared COVID-19 a global pandemic, and during this time, numerous transformations have taken place.

And since then Australia's rental markets in the nation have experienced a turbulent journey, ultimately leading to a crisis, where renters to face considerable difficulties due to challenging market conditions.

When considering various measures, most rental markets across the country are very, very different to conditions before the pandemic.

While there has been a slight relief for regional renters in recent months, the truth remains that conditions are tougher now compared to just over three years ago.

In major cities such as Sydney, Melbourne, Brisbane, Perth, and Darwin, conditions have further tightened over the past year, accompanied by a 13% increase in advertised rental prices.

So let's explore what has changed over this period.

Rental Prices

According to PropTrack, nationally advertised house rental prices are up 26% on pre-pandemic levels, while unit rents have risen 17% over the same period.

However, there are some markets where median advertised weekly rents have surged by close to 50% since March 2020.

Ms Eleanor Creagh, Senior Economist at PropTrack said:

"Compared to the start of the pandemic, there are almost 40% fewer rentals on the market.

A persistent shortage in the supply of available rentals means strong demand to rent, bolstered by the strong rebound in immigration, continues to outstrip supply.

As a result of this mismatch between supply and demand, vacancy rates are low in most markets and rental prices are increasing at a fast pace."

PropTrack's data shows that the national advertised rental prices are up 8.7% over the past year. Looking at the combined capital cities rents are up 13% year-on-year.

The availability of affordable rental options continues to decline

The significant surge in advertised rental prices has resulted in a decrease in the proportion of affordable rental properties.

In April 2023, the share of total properties listed for rent on realestate.com.au for less than $400/week reached its lowest point on record, falling to 16.2%.

Low-income households facing the need to relocate and search for rental property will encounter significant challenges in their efforts to avoid allocating a substantial portion of their income towards rent.

Rental vacancies fall

Based on PropTrack's data, the national rental vacancy rate is now sitting at 1.42%, after lifting 0.12 percentage points in April indicating conditions eased slightly.

Nevertheless, vacancy rates continue to be low, having decreased by half nationwide since the early stages of 2020 prior to the onset of the pandemic.

As a result, the rental market conditions remain tight.

Adelaide and Perth currently have the lowest rental vacancy rates in the country, both below 1%.

Ms Creagh commented:

"In most capital city markets conditions have tightened over the past year, with the exception of Hobart, the ACT and Adelaide.

Though with a vacancy rate of less than 1%, Adelaide still faces crisis conditions, with rental prices increasing 11.9% in the past year."

In the major cities, rental properties are experiencing intense competition, with high demand and limited availability.

Properties are being rented out rapidly, and many individuals are forced to make sacrifices in order to secure a rental.

Ms Creagh further commented:

"The housing shortages in the rental market have been caused by a number of factors on both the supply and demand side.

The buying boom that occurred when interest rates dropped to record lows was largely driven by owner-occupiers, while investors withdrew, contributing to the decline in total rental listings.

Compounding this is the decline in average household size since the start of 2020, which has created additional demand in the rental market.

With hybrid working practices now the norm for many, this trend is likely here to stay."

The existing challenges in the rental market may prompt renters to revert to shared accommodations or motivate those financially capable to consider purchasing a property earlier than planned.

If this trend continues, it could alleviate some of the demand pressures in the rental market.

Nevertheless, the most viable and lasting solution to the rental crisis lies in expanding the availability of long-term rental options.

This is especially crucial considering the significant increase in net migration, which is contributing to the growing demand for rentals in major capital cities.

Estimates indicate that approximately 70% of new migrants opt for renting when they initially arrive in Australia.

What's ahead?

Throughout the pandemic, people started prioritizing their lifestyle choices, leading to a surge in demand for housing in regional areas across Australia, both for buying and renting.

The desire for more space and affordable housing, coupled with the availability of remote work opportunities, fueled substantial population growth in regional areas at the expense of the major cities.

While this shift may have been permanent for some individuals, for others, it might be less enduring.

As city life gradually resumes, the pressure has now shifted to the rental markets in the capital cities.

These markets have experienced significant tightening over the past year and have witnessed notable increases in rental prices.

Ms Creagh explained:

"The good news is conditions may not worsen at the pace they have been and indeed vacancy rates eased slightly in April in most markets.

But the bad news, with net inflows from overseas migration and student arrivals remaining elevated, and a rental vacancy rate of just 1.42% in April, there is no indication of rents going backwards nationally, or meaningful reprieve for renters.

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

However, this takes time, and there isn’t much to suggest anything on the immediate horizon will meaningfully increase the supply of available rentals.

We are seeing a downturn in building activity and investor activity is also not where it was several years ago.

With 1.5 million arrivals forecasted over the next 5 years, we’ll continue to need more new homes."

Due to factors such as high migration rates, low vacancy rates, and limited new housing supply, it is expected that tough conditions for renters will persist.

The proportion of rentals available for less than $400 per week is likely to decrease further.

In the coming months, rental markets are expected to remain tight, primarily due to the sustained high demand, especially in the capital cities.

It is unlikely that the rental market will ever return to its previous state, indicating a long-lasting shift in dynamics and conditions.

Source of charts 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.