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Why some tenants might struggle more in the current rental market? - featured image

Why some tenants might struggle more in the current rental market?

The rental markets throughout the country are already highly competitive due to a shortage of available rental properties.

This has led to historically low vacancy rates and skyrocketing rents.

This situation is especially pronounced in metropolitan areas, particularly in the apartment market, where strong demand drives up the pressure.

Add to that the latest data from ABS showed that net overseas and student arrivals continue to rebound strongly, pointing to ongoing and increasing rental demand in the capital cities.

Houses Continue To See Strong Rental Price Pressures

Eleanor Creagh, Senior Economist at PropTrack explains:

"This is due to new migrants and international students being significantly more likely to rent than buy when they first arrive in the country and predominantly in the inner and middle ring suburbs of Sydney and Melbourne.

Through the pandemic migration slowed dramatically as international borders were closed, dropping to almost zero in net terms."

Rental Price Pressures Are Strong In Capital City Unit Markets

There's a strong rebound in net migration

During the pandemic, migration came to a virtual standstill as international borders were closed, resulting in a significant drop in net migration levels.

The Federal budget projected a net overseas migration of 235,000 for the years 2022-23 and 2023-24.

However, recent data on net permanent and long-term arrivals indicate a faster-than-expected rebound from the Covid-induced lows.

Number Of Movements Sa Annualised Quarterly Net Permanent And Long Term Arrivals

This suggests that net migration could surpass Treasury forecasts and reach record levels.

Students make up a significant portion of long-term visa holders, and recent data shows a surge in net student arrivals.

This could further increase demand for rental properties, particularly in the cities and areas close to major universities and CBDs.

Rental vacancy rates are already sitting at historic lows in some parts of the country

The process of securing a rental property has become an overwhelming challenge for some households as properties are being leased at an unprecedented pace.

In certain regions of the country, rental vacancies have hit an all-time low, leading to surging rent prices and rapid leasing of properties.

Rental Vacancy Rates

According to PropTrack's most recent Rental Report, in December 2022, the median duration a rental property remained on was merely 18 days, which marks a five-year low.

Ms Creagh shared her insights:

"At a national level, rental price growth has remained strong as 2023 has kicked off with advertised prices rising 4.17% month-on-month in January 2023 as markets remain tight.

With rental pressures continuing into the new year, rental prices for houses in the capital cities increased 3.85% month-on-month in January, with unit rents rising 2.13%.

Regionally, rental prices grew 1.05% for houses, while units surged 5.00% month-on-month."

Obviously, the rental market is still experiencing high demand, while the supply of available properties remains constrained.

In fact, the total number of rental listings is currently at its lowest point since mid-2003.

Most of the intense competition is happening in the unit markets of Sydney, Melbourne, Brisbane, and Adelaide.

Competition For Rentals Has Increased Most In The Capital City Unit

However, in regional areas of South Australia, Queensland, and Western Australia, the demand, as measured by the number of potential renters per rental listing on, has started to ease off, suggesting a shift in the regional rental market.

Ms Creagh further explained:

"Housing markets in regional Australia, both to buy and rent, experienced extreme demand through the pandemic as people sought more space and more affordable housing, with remote working opportunities and preference shifts driving strong population growth in regional areas at the expense of the capitals, predominantly Sydney and Melbourne.

The number of potential renters on has now eased off high levels in the regions with easing net migration flows to regional areas, but rental pressures are shifting to the capital cities as net migration rebounds strongly and inner-city rental markets recover off their Covid lows."

Price pressures are unlikely to ease in the capital cities anytime soon

Over the past year, unit rental demand in Melbourne has surged, nearly doubling (+73%), while in Brisbane and Sydney, it has increased by more than 50% year-on-year.

As a result, there is pressure on rental prices, with year-on-year growth in median advertised rents for units in Sydney, Melbourne, Brisbane, and Adelaide exceeding 10%.

Rent Con

The current tight rental market conditions can be attributed to several factors, but the increased household formation is a significant contributor.

Rental demand for smaller dwellings has risen, partly due to household sizes decreasing as a result of remote work trends and Covid restrictions.

The trend of smaller household sizes is also reflective of demographic changes, with an ageing population and evolving household and family structures.

Ms Creagh said:

"Rebounding international arrivals are set to add further pressure, particularly in the major capitals, where we know migrants are most likely to rent.

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.

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.

This is particularly the case if renting households remain smaller as changing work, lifestyle and family formation trends impact the make-up of households.

However, the increased cost of renting may incentivize some back to larger households via shared living arrangements, a small reprieve for demand pressures.

With conditions already tough for would-be tenants amid upward rental price pressures and a short supply of available rentals, the availability of affordable rental properties will be a major challenge and tackling the issues fueling the short supply of rentals need a primary focus."

Sources 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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