Where have all the affordable rentals gone?

Crisis conditions have gripped Australia's rental markets in recent years, with affordable rentals now few and far between.

According to PropTrack, nationally advertised rental prices are up 43% for houses and 46% for units compared to pre-pandemic levels.

In some markets, like Queensland and WA, median advertised weekly rents have surged by close to 80% since March 2020.

These increases are evident across both capital cities and regional areas.

Decreasing supply of affordable rentals

PropTrack's Senior Economist, Eleanor Creagh said that the significant rise in rents since the pandemic has seen the share of properties listed for rent under $400/week hit a record low of just 10.4% nationally.

In the capital cities, only 5.9% of rentals are now less than $400 a week.

She further said:

"A persistent shortage of available rentals, combined with strong demand bolstered by record net migration, has pushed rental vacancy rates to historic lows.

Since late 2021, rental market conditions have tightened considerably in city markets hit hardest by the pandemic.

Smaller households, cities springing back to life, and a surge in net migration and student arrivals have all contributed to this trend."

Data from PropTrack show that although vacancy rates have eased slightly in the past couple of months, they remain close to record lows and less than half the level considered healthy.

Low vacancy rates drive rents higher, creating challenging conditions for renters.

Ms Creagh commented:

"Rental listings under $400/week have plummeted in every market for both houses and units.

At the start of the pandemic, one in five house rentals in Sydney cost less than $400 a week – now it’s one in 50.

In Melbourne, it’s one in 25."

Impact on lower-income households

Ms Creagh said that these forces place immense pressure on renters, especially lower-income households, as cheaper rentals become ever scarcer.

She further commented:

"For households earning in the bottom 20% of the income distribution, only about 1 in 100 rentals advertised nationwide in April 2024 were affordable (based on spending 25% of their pre-tax income on rent).

For those in the bottom 30%, about 1 in 30 rentals were affordable, meaning they would need to spend more than 40% of their income on rent to find an affordable place."

This situation highlights the critical need for rental support for low-income renters and an increase in the supply of housing.

Recent data from realestate.com.au's Residential Audience Pulse survey showed that half of the survey respondents actively looking to rent indicated they are experiencing financial difficulties.

Meanwhile, higher-income earners can make trade-offs to find more affordable rentals, but this means lower-income renters face tougher competition for cheaper properties.

This dynamic has likely contributed to the diminishing share of rentals under $400 a week.

Ms Creagh explained:

"The broad-based surge in rents since the pandemic onset has shrunk the share of rentals priced at less than $400 a week.

Recent strong rental price growth in cheaper outer capital city regions has further reduced the share of affordable rentals.

Challenging market conditions have compelled 72% of renters to make compromises when searching for rental properties.

Notably, the regions facing the most acute crisis conditions tend to be further from city centres, with tough conditions in inner city markets spilling out into the outer capital city regions."

Population growth and housing demand

In the year ending September 2023, Australia's population grew by 659,800 people, with net overseas migration accounting for more than 80% of that growth.

Based on an average household size of 2.5 people, that’s more than 260,000 new households adding to the already strong demand for housing.

Meanwhile, industry challenges have slowed the delivery of new homes, with only 170,000 new homes completed in the same period.

This imbalance keeps demand for rentals elevated and supply low, leading to higher rents.

Looking ahead

The good news is that the pace of rental price growth is expected to ease.

Net overseas migration is projected to move lower in the coming year, likely easing rental demand.

However, increasing the pool of long-term rentals is the only sustainable long-term fix, and this takes time.

Ms Creagh noted:

"Given the crisis conditions in the rental market, with vacancies close to record lows in most markets, it’s clear we need more affordable and available rentals, particularly for lower-income households.

Low-income renters and those on benefits cannot compete when properties are severely limited, increasing the risk of homelessness among these groups.

This highlights the critical need for increased supply of social housing and public housing initiatives."

She further highlights that other strategies that can help alleviate rental market challenges include supporting first-home buyers into home ownership, better utilizing millions of spare rooms or encouraging those with homes too large for their needs to downsize.

However, sustainably improving rental affordability in the long term will require increasing the availability and provision of affordable housing.

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.