- Rental vacancies dropped to 1.43%.
- Perth and Adelaide remain under 1%.
- Melbourne recorded the largest annual decline among the capitals.
Rental vacancies dropped once again in July, down 0.04 percentage points (ppt) to 1.43%, according to the latest PropTrack Market Insight.
Rental vacancy rates reflect the percentage of rental properties that are unoccupied and available for rent. According to the Real Estate Institute of Western Australia (REIWA), the rental market is balanced, where supply and demand are in equilibrium, when the vacancy rate sits between 2.5% to 3.5%.
On the other hand, a low vacancy rate, which describes the current rental situation in Australia, means that few rental properties are available in the market. This bodes poorly for renters, as the supply and demand mismatch arising from a shortfall in rental listings tends to drive rental prices upwards.
Alarmingly, vacancies have halved since the beginning of the COVID-19 pandemic.
Rents around Australia
Vacancy rates tightened in Sydney, slipping 0.09 ppt to 1.65%. While Melbourne’s rental vacancy rate stayed at 1.41% in July, it was still 0.82 ppt less than 12 months ago, the highest annual drop recorded in any capital city.
Brisbane’s rental vacancy rate was mostly static over the month, growing by a mere 0.01 ppt to 1.15%.
Perth and Adelaide continue to have the tightest rental markets, with vacancies just under 1% in the capital cities.
The situation was no better in the regional areas, where the supply of rental properties fell as well, with the vacancy rate falling by 0.04 ppt to 1.51%.
The worst might have passed
While CoreLogic‘s national rental index recorded a 0.5% rise in August 2023, also the 36th successive increase, it was the lowest month-to-month growth recorded since November 2020.
Annual change in rent (houses)
Nationally, rents had a 9.0% annual rate of growth in August, the lowest since April 2022, but just under thrice the 3.2%-decade average.
While there has been a marked slowdown in the rate of rental growth, some regions, like Melbourne and Perth, have continued to see unimpeded rental growth.
Melbourne’s annual growth hit a new peak of 11.9% over the past 12 months, although the rolling quarterly trend has decelerated since May.
Perth unit rents also hit a new cyclical record, with a 16.4% annual growth. Notably, the quarterly rate of growth of Perth’s units has also lost steam since May.
Annual change in rent (units)
Growth stagnating despite tightening rental vacancies
The good news for renters is that rental growth has been tapering off even though rental vacancies tightened in July.
Gross rental yields have fallen to 3.82% in August, from their April peak of 3.89%. Lower gross rental yields have been caused by housing values growing marginally quicker than rental rates since May.
“With housing values continuing to rise and rental growth easing, it’s looking increasingly like we have moved through a peak in gross rental yields,” said CoreLogic research director Tim Lawless.
“April’s gross yield peak of 3.89% was roughly in line with the decade average of 3.88%. Considering the higher cost of debt alongside higher taxes in some states and less depreciation benefits, it’s likely net rental yields have compressed further.”
Tough road ahead for renters
Even though the pace at which rents have grown may have moderated, the road ahead remains grim for renters in Australia.
“The cost of renting is likely to increase further for Australia’s tenants in the months ahead, with the national vacancy rate falling in July,” opined PropTrack economist, Anne Flaherty.
“Both capital cities and regional areas saw the supply of rental properties decrease over July. Melbourne has seen the sharpest decline in rental vacancies of any market over the past 12 months. As Australia’s fastest growing capital city, vacancy is likely to fall further in Melbourne and lead to higher rents.
“While vacancy rates in regional areas fell over July, they remain above the levels seen 12 months ago in every state, with regional NT and Tasmania seeing the biggest jump in availabilities. This suggests a slowdown in the trend towards regional living that accelerated during the pandemic.
“Although, pressure is unlikely to ease any time soon for tenants, with the number of vacant properties predicted to remain at extremely low levels over at least the next 12 months.”
Flaherty told The Property Tribune that there were several reasons behind the continued downward spiral of rents across Australia.
“The total number of vacant homes available for rent has halved since the onset of the pandemic due to a combination of population growth, a decrease in the average household size, more investors selling than buying, and higher interest rates,” she said.
“Australia added just shy of 500,000 to its population in 2022 and, given new migrants are more likely to be renters, this has added to the demand for rental accommodation.
“Between 2016 and 2021, the average number of people per dwelling dropped from 2.6 to 2.5 due to the pandemic, which resulted in the need for an estimated 200,000 additional homes. While the average household size has picked up slightly since 2021, it remains well below pre-COVID levels, according to the Reserve Bank.
“Higher interest rates and property prices have also impacted the rental market. By making it more expensive to buy and service a property, the transition from renter to homeowner has become more difficult for many tenants.
“Vacancy rates are likely to remain below historic levels for some time given the pace of population growth and a simultaneous slowdown in the rate at which new housing is being developed.”
Anne Flaherty, PropTrack Economist
Flaherty added that the increased focus by state and federal government on the need to boost the supply of housing is one cause for hope.
“Ultimately, increasing supply to ensure enough new homes are being built to accommodate our growing population will be the only solution to the rental crisis. Unfortunately, this is not a quick fix as, in addition to build times, the process of removing tax and legislative barriers to development will take time.
“Build-to-rent could play an important role in alleviating the shortage of rental accommodation, and it was encouraging to see the Federal Government remove many of the barriers to this investment class in its latest budget.”
