One of the most newsworthy topics of recent years has been the rental market.

That’s because it has been completely out of whack, which has resulted in higher weekly rents and record low vacancy rates.

For those of you who have been reading my regular missives for a while, you will know that I have often commented on this state of play, including how the lack of social housing investment, poor policy decision making, and anti-investor legislation driven by political knee-jerk reactions by a plethora of state governments over the decades are a big part of the problem.

But, what is the current rental market situation after a number of years of extreme under supply?

Rental growth continuing

There was some better news for tenants recently with the latest CoreLogic research finding that rental growth had eased – somewhat – of late.

According to the new research, the Australian rental market experienced its slowest growth in four years, with CoreLogic’s monthly Chart Pack showing a modest 0.1% monthly increase in national rents during July.

Results were varied across the country with rents rising 0.6% in Adelaide and 0.3% in Melbourne and Perth, while remaining flat in Darwin and Canberra. In contrast, rents have declined in Sydney (-0.1%), Brisbane (-0.1%), and Hobart (-0.3%).

But, let’s be honest, what we are talking about here is a moderation of rental price growth, which was always going to happen at some point as such significant upward price pressure could not continue forever – markets just don’t work like that.

The easing in monthly growth follows a surge of nearly 40% – or about $180 per week on average – in national rents over the past five years. 

At an annual level, CoreLogic’s Rental Value Index found national rents increasing 7.8% in the year to July, down from a recent peak of 8.6% in April.

Low supply entrenched

Of course, rental markets have localised variations just as sales markets do, which is why we see some areas recording higher rental price growth than others – often due to its residential vacancy rate.

According to SQM Research, the national vacancy rate is just 1.5%, but in Adelaide it is 0.7%, in Perth it is 0.6%, while in Brisbane it is 1.1% – all cities which have seen the biggest increases in asking rents over recent years.

In Adelaide, asking rents have soared by 12.6% and in Perth they are up 12.3% over the year. In Brisbane, according to SQM Research, asking rents have increased 5.7% over the past year, but nearly 40% in the past three years.

Sydney and Melbourne have experienced asking rent rises of 5.1% and 6.4% respectively over the past year.

So, the rental market reality check is that rental prices have been rising for a few years, and that’s not likely to change in the foreseeable future.

You are probably thinking ‘Of course, you would say, that, Kate because you work with property investors’, but the truth of the matter is that we simply do not have enough rental dwellings to house our current and growing population.

Partly this is because of post COVID catch up immigration inflows we have experienced over recent years, but it’s also because of the plummeting volume of new dwellings being constructed, as well as those poor anti-investor legislative policies. Investors who supply about 90% of Australia’s rental stock!

One only needs to review the latest Australian Bureau of Statistics data on dwelling comments (handy graph below) to understand what I am talking about here.

In a period of high interest rates and construction costs, developers are opting to stay on the sidelines, because they have to make a profit to make their efforts worthwhile.

So, while we continue to have such a supply and demand imbalance, then the reality of the rental market is that rents are going to continue to increase until something materially change to address this disequilibrium.