Vacancy rates plummet to historic lows in Australia despite rental growth slowdown
Shortage of 47,500 rental properties as listings drop 15.1 per cent below last year’s levels. Image: Canva.
  • Record low vacancies in Australia's rental market despite easing rental growth.
  • National rental listings shortage intensifies, driving up rental costs across cities.
  • Rental yields adjust as property values outpace rental growth.

Vacancies in Australia have dropped to a new record low, unabated by the recent slowdown in rental growth, according to CoreLogic’s Quarterly Rental Review for Q3 2023.

Rental vacancies unaffected by high prices

Australian rental values grew by 1.6% over the third quarter of 2023, slumping from the 2.2% of the June quarter and a whole percentage point under the recent peak of 2.6% seen over the three months to April.

Hence, the annual pace of growth dropped from a revised peak of 9.6% in the last 12 months to 8.4% in the year to September.

Nevertheless, the unimpeded shortage of rental properties has caused the national vacancy rate to contract to a new record low of 1.1% in September, with total national rental listings having fallen to their lowest since early November 2012.

CoreLogic economist and report author Kaytlin Ezzy said several factors were bogging down rental growth despite the scarcity of rental listings.

“Worsening affordability continues to be a significant factor placing downward pressure on the pace of rental growth in recent months,” she said.

“After recording a small dip over the first few months of COVID, national rents have risen for 38 consecutive months, taking rental values 30.4% higher since July 2020 and adding the equivalent of $137 to the median weekly rent.

“With the rising cost of living adding additional pressure on renter’s balance sheets, it is likely tenants have hit an affordability ceiling, seeking to grow their households to share the growing rental burden.

“The situation of low rental vacancy rates and insufficient housing supply is broad issue impacting regions around the country to different extents.

“Record high net overseas migration, fuelled by a combination of an increased flow of new arrivals and weaker departure numbers, coupled with a continued shortfall in rental listings, saw the vacancy rates falling to new record lows across both the combined capitals (1.0%) and combined regional markets (1.2%).”

National rental listings plunge further

The total count of national rental listings slipped to its lowest level since early November 2012, with a mere 90,153 properties available. This translates to a shortage of around 47,500, with total listings 15.1% under the levels seen the same time last year and 34.5% below the prior five-year average.

Rental growth across the capital cities remained ahead of the combined regionals, with rents growing by 1.9% and 0.7% over Q3, respectively. Rental appreciation decelerated in both markets over the quarter, dropping by 80 basis points across the capitals and 10 basis points across the regions.

House and unit rent difference increases

The rental growth of houses has pulled away from units, rising by 1.7% and 1.3%, respectively, over Q3.

Quarterly change in rental rates

Quarterly change in rental rates
Source: CoreLogic.

“Since peaking at 4.3% over the three months to April, the pace of quarterly rental growth across Australia’s unit sector has plummeted by more than two-thirds taking the gap between the median house and median unit rents from $33 in May to $36 in September,” Ezzy said.

Ezzy explained that the growing soaring costs of unit rents, combined with the move towards larger rental households to share rental fees, was behind the ever increasing divide between the two property types.

“Much of the unit sector’s relative affordability has been eroded through the recent rental surge, with unit rents rising 11.7% over the past 12 months compared to the 7.1% rise in house rents,” she said.

Variations in rental conditions across the capitals

Although rental growth generally slackened, nationally, over the quarter, there were marked differences across the individual capitals.

Quarterly rental growth rate – Capital city dwellings

Quarterly rental growth rate Capital city dwellings
Source: CoreLogic.

Darwin and Brisbane had the highest quarterly increase in home rents, up 3.3% and 2.5%, respectively. Both markets witnessed an acceleration in the pace of rental appreciation over the quarter.

On the other hand, rental growth waned in Perth, Melbourne, Sydney, and Adelaide, with their growth now standing at 2.5%, 2.3%, 1.7% and 1.7% respectively.

Sydney remained the priciest capital city, with a median dwelling rent of $726 per week, followed by Canberra’s $649 per week, and Darwin’s $615 per week. Hobart was the most affordable capital, with rents at $529 per week, next to Adelaide’s $548 per week.

Yields dwindle as growth surpasses rents

With the 2.2% growth in national property values surpassing the 1.6% growth in national rents over the quarter, national gross rental fell slightly by three basis points to 3.69% in August before increasing by two basis points to 3.71% in September.

Gross rental yields over time

Gross rental yields over time
Source: CoreLogic.

Despite slipping by two basis points from April’s peak (3.73%), national gross yields for the month are 20 basis points higher than the 3.51% recorded at the same time last year and 55 basis points more than the record low experienced in January 2022.

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