Is this a sign our rental crisis is nearing an end?
Australia’s rental market plunged into crisis over the last few years, as supply dwindled through 2022-23 when interest rates began to surge and many investors sold up and a few new investors entered the market.
We saw vacancy rates drop to all-time lows, rental stock remained extremely slim, and rental prices skyrocketed.
In fact, it has been a tough four years for renters.
Since the start of the pandemic, rents have risen on average $200 per week across Australia, according to Ray White data.
Perth topped the list, with an increase of $280 per week.
Hobart has seen the lowest at $100 per week.
Interestingly, the comparative strength in rental growth is broadly similar to what we’ve seen with price growth, Ray White said.
But bear in mind that while rents have risen a lot, it comes after a prolonged period of very little rental growth – in the four years prior to the pandemic, rents nationally increased by only $25 per week and actually declined $30 a week in Perth.
In fact, globally in 2020, according to the OECD, Australia was one of the best places to be a renter in the world, with very low levels of rental stress.
While the number of households under rental stress has surged in Australia since 2020, Australia’s ranking compared to the rest of the world is unlikely to have changed significantly.
After all, rental challenges are occurring pretty much everywhere – underbuilding, relatively strong population growth and changes to household types are not just Australian problems.
But the tide may be turning.
Ray White points out that while rents have risen sharply, this situation does seem to be improving, although it depends on where you live.
The data shows that for houses, rental growth has decreased in Brisbane, Darwin and Hobart, by as much as $15 per week over the past 12 months.
Sydney, Melbourne and Darwin units are also now seeing a decelerating rate of rental growth, by as much as $50 per week.
Rental growth still continues to be growing strongly in Canberra, Sydney, Perth, Adelaide and Melbourne houses, while for the unit market Perth, Adelaide, Hobart and Brisbane have seen the strongest price growth over the 12-month period.
Just to be clear… rental growth is occurring, but not as fast as last year.
The outlook for 2024
Ray White predicts that rental growth will continue to decelerate this year,
The average household size is rising again after declining during the pandemic, while very high levels of population growth are likely to moderate this year.
However, Ray White also warns that the housing supply is still very low, although moderating rises in construction costs are likely to improve this a bit.
“However, we are unlikely to see rents moderate significantly until we start to reach targets set out by the Federal Government’s Housing Accord. Unfortunately, a marked increase in rental affordability is some years off.”
Metropole’s outlook
At Metropole, we believe that with the limited new projects and robust population growth, the housing shortage will only continue.
After all, rising levels of rental stress are a problem that can only be improved with an increase in the number of rental properties.
The federal government has recognised the need for more housing, setting a target of 1.2 million new homes by 2029.
But current trends suggest it’s unlikely we’ll meet this target in that proposed timeframe.
As we move through 2024, the limited supply of new dwellings, strong population growth, and shifts in preferences due to the pandemic will continue to put pressure on rental markets.
While this is bad news for tenants, it means that rental property providers will start to get compensated for their increased overheads and expenses.
