- Several factors are at play, including migration, interest rates, building challenges, and wage stagnation.
- Unit markets are feeling the heat as the more affordable option sees demand rise.
- Solutions include increasing supply, zoning reforms, and more skilled workers.
Australia is meant to be the ‘lucky country’, so why are many Australians falling victim to the current rental crisis? And what is causing the rents to skyrocket in many capital cities?
Over the past 12 months, nationally, rents for houses grew by 10.5% on average; this works out to about $55 per week. Over the same period, unit rents went up a staggering 17%, which is approximately an increase of $80 per week, according to PropTrack data. While this trend was more prevalent in the capital cities, most states saw an upward trend in rents.
Due to interstate and international migration, now that the borders are open, we are seeing a demand for rental units far surpass supply, so, many prospective tenants are offering above the asking price to secure a place to call home, which is only pushing up rents further.
Units were hit hardest as demand was heaped onto the unit market due to the rising cost of living and more people are finding themselves unable to afford the rent for a house. Units are now becoming the most sought-after and more affordable option for renters and this trend is only expected to keep rising in 2024. Sydney and Melbourne had the largest year-on-year change, whereas, Hobart did not seem to be impacted as rents remained relatively the same.
Canberra was the only place to experience a drop in weekly rental prices year-on-year for houses, with units showing less than a 1% increase. Canberra’s drop in rental demand is believed to be due, largely, to Canberra being one of the most expensive places to rent in 2023 and, although the year-on-year growth percentage shows stagnant rent, the cost to rent is still expensive compared to other cities across Australia. In January 2024, there were not as many people moving into Canberra during the January frenzy as there had been in previous years. Remote working is now more popular than ever, so there is no need for public servants to be located in Canberra, which has contributed to a slowdown in migration.
For property investors, the increasing rental prices are a result of rising interest rates and pressures to be able to make mortgage payments. However, the increased rents are pushing more people who are renting into property ownership as many are finding that it would be cheaper for them to pay a mortgage than pay rent.
There seems to be no relief on the horizon, with 2024 rents expected to continue to rise due to a lack of supply.
Australia’s rental crisis: What caused it?
Migration – The increased demand across Australia’s rental market from local and international migration has led to a supply shortfall. It is also not as simple as limiting the number of migrants coming into the country because international migrants make an enormous contribution to our economy.
Rising interest rates – landlords passing on the interest rate rises to their tenants to cover their increased mortgage repayments, otherwise their investment property would become unaffordable.
Building industry – A crackdown in the building industry and tightening of regulations has slowed down new building approvals, meaning it is taking longer for new properties to be available for renters. There is also a shortage of skilled workers in the construction industry, which has led to workforce problems.
Wage Stagnation – inflation has been increasing but our wages have not, making the cost of renting relatively expensive. The gap between wage growth and rental increases has been steadily widening. This is problematic to those on low incomes, who are disproportionately impacted by the rental crisis; neither can they can’t afford to buy their own property, but with the current cost of living and soaring rents, they can’t afford to save up for a house either so are left to compete for rental accommodation.
How can the Australian rental crisis be fixed?
Increase housing supply – Demand far outweighs the supply of rental accommodation at the moment so we are in desperate need to increase the supply of affordable housing. The Government should be looking at strong initiatives to promote the construction of affordable housing, fast-track approvals for more housing, and incentives for the private sector to invest in affordable low-cost housing.
Zoning reforms – Current strict zoning regulations limit the scope of development, which contributes to the scarcity of available properties. If zoning was re-assessed, allowing for more high-density housing to be permitted, this could allow for housing supply to be increased.
More skilled workers – influencing young students to choose a trade and get into the building industry can help the future of the housing supply in Australia. By providing builders and construction companies with incentives to take on apprentices alongside the Government providing low-fee or free courses, then the supply of skilled workers to overcome the skills shortage would increase productivity of new builds in the future.
