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What’s ahead for our rental market in 2023? - featured image

What’s ahead for our rental market in 2023?

The rental market has undergone significant changes in recent years, and with a new year comes the question of what's ahead for renters in 2023.

Well, the latest data released by the Australian Bureau of Statistics showed overseas and student arrivals continue to rebound, pointing to ongoing increasing rental demand in the capital cities.

Annual Change In Median Weekly Advertised Rents December 2022

Ms Eleanor Creagh, Senior Economist at PropTrack said:

"At a national level, rental price growth steadied over the December quarter after hitting record quarterly growth in September, although advertised prices still rose by 6.7% over the 2022 calendar year and markets remain tight.

In the capital cities, rents rose 10% in the past year, while regional rents rose 7.1%.

Demand for rental stock remains heightened and supply continues to be limited.

Total rental listings remain at their lowest level since mid-2003."

Pressure is now shifting to the capital cities

The latest PropTrack Rental report showed that with supply remaining tight and demand high, capital city rents rose at a faster pace than regional rents in the December quarter for the first time since September 2020.

Ms Creagh commented:

"Throughout the Covid period, regional rentals surged in popularity, with many opting to take advantage of the increased residential choice brought by hybrid and remote work trends.

This placed enormous strain on rental markets in the regions.

In the regions, rental supply remains tight but there has been some reprieve.

In December, total regional rental listings were 9.8% higher year-on-year, the largest year-on-year increase since June 2014.

However, with the pandemic in the rear-view mirror and borders having reopened, pressure has shifted to the capital cities – particularly the larger ones – and inner-city rental markets have tightened over the past year.

In the capitals, total rental listings were 26.3% lower year-on-year in December and are now at the lowest point since February 2003."

Annual Change In Overseas Searches To Rent By State

Of course, while there are several factors that have exacerbated the current tight rental market conditions, the increased household formation was an important factor.

Ms Creagh further commented:

"Rental demand for smaller dwellings increased in part due to household sizes shrinking thanks to remote work trends and Covid restrictions.

Smaller household sizes are also part of a generational trend, with the population ageing and the nature of households and families changing.

Rebounding international arrivals are likely to add further pressure, particularly in the major capitals, where we know migrants are most likely to rent – and predominantly in the inner and middle ring suburbs of Sydney and Melbourne.

With the tight supply of rental stock in the major capital cities persisting, this is likely to see continued upward pressure on the cost of renting and result in tough conditions for renters."

Net permanent and long-term arrivals continue to increase

Net permanent and long-term arrivals are good indicators of migration trends, and arrivals are a strong leading indicator for long-term population growth.

Net Permanent And Long Term Arrivals Rebound

Recent data released by the ABS showed a big turnaround from Covid lows, with net permanent arrivals rebounding to pre-pandemic levels and on track to well outpace Treasury forecasts.

Population growth is a key contributor to the demand profile in both the market to rent and buy.

Ms Creagh said:

"Students are also a large chunk of the long-term visa mix.

The latest arrivals data by visa group continues to show a surge in net student arrivals, which will continue to add to already strong demand to rent in the cities close to the CBD and major universities."

Rental outlook for the year

Well, some of the rental pressures that have been evident over recent years in regional markets appear to be easing, while the market is tightening in the major capital cities.

With the current strong demand for rental accommodation likely to grow and without a meaningful increase in rental supply on the horizon, it doesn’t look like price pressures will ease in the capital cities anytime soon.


Mr Cameron Kusher, Director of Economic Research at REA shared his insights:

"The rental market is tight, and rents have been rising because there is excess demand and insignificant supply.

With mortgage servicing costs heightened due to higher interest rates, people moving back to capital cities and overseas migration lifting, it looks unlikely that the high level of demand will reduce, particularly in capital cities.

At the same time, the share of lending to investors is low and investors face higher mortgage interest costs than owner-occupiers.

The most effective way to alleviate rental pressures in the short-term is to encourage more investment in housing.

Addressing the demand and supply dynamic will take some time which means that supply is likely to remain tight and the cost of renting will increase.

Rent price increases will be much stronger in capital cities while regional areas are likely to see rental market pressures continue to ease."

Source of charts and commentary: REA Insights

About 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.
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