Australia needs up to 70,000 additional rental properties to create a balanced market, which is a need unlikely to be met anytime soon.
According to the Domain Rent Report for the September quarter, both the weekly asking rent for the combined capitals and the national vacancy rate are at record levels.
Weekly asking rents for the combined capitals rose 3.4 per cent in the September quarter to $600 for houses and units, while the national vacancy rate returned to a record low 0.8 per cent.
Domain Chief of Research and Economics Dr Nicola Powell said it was definitely a landlords’ market.
“It was another quarter of milestones for Australia’s rental market,” she said.
“We’ve got record high rents, and it’s actually extended the record-breaking streak of consecutive rental increases.
“We have got rents across the combined capitals at a record high and when you look nationally at the vacancy rate, we’ve actually seen the vacancy rate tighten again and it’s now sitting at a record low of 0.8 per cent.”
Sydney and Perth both have record low vacancy rates of 0.9 per cent and 0.3 per cent respectively, while Melbourne (0.9 per cent), Brisbane (0.7 per cent), Adelaide (0.3 per cent) and Darwin (0.7 per cent) are close to record lows.
Alarmingly, Adelaide and Perth have had a vacancy rate below 1 per cent for about three years, while Brisbane is almost two years in.
“We estimate that we need between 40,000 and 70,000 additional rentals across Australia to create a balanced rental market,” Dr Powell said.
“A balanced rental market is when you’ve got the vacancy rate between two and three per cent.
“And if you’re looking at up to 70,000 additional rentals, that’s like adding all of the dwellings that are in the LGA of Newcastle to Australia’s rental market.”
In terms of asking rents, Melbourne experienced the highest rise in the September quarter at 5.8 per cent, with house rents climbing from $520 per week to $550 per week.
Houses are most expensive to rent in Sydney at $720 per week, which is 2.9 per cent higher than the June quarter.
“It’s very much a landlord’s market across Australia,” Dr Powell said.
“I would say that the outlook across the different cities is pretty similar.
“There’s probably two that stand out where conditions are a little bit better for tenants and that’s in Canberra and in Hobart.”
For the first time in two years, Melbourne is no longer the most affordable city to rent a house, with that title passing to Hobart at $530 per week, while Canberra’s weekly asking rent for a house dropped three per cent in the September quarter to $655 per week.
Hobart, along with Adelaide, is also the most affordable capital to rent a unit in at $450 per week, while Sydney is again the priciest at $680 per week.
“There are a number of different factors that have created these extraordinary conditions that we’ve seen in our rental market, not only over the most recent quarter, but really over the last couple of years,” Dr Powell said.
“It is a lack of rental supply, at a time when you’ve got strong levels of population growth.
“We’ve got record levels, and have seen record levels of overseas migration coming into Australia, and that’s created some really strong population growth, particularly coming out of WA, Victoria and Queensland.”
Ms Powell said one of the critical factors affecting the market was investors, with recent announcements about additional taxes likely acting as a deterrent.
“They are currently reluctant to hold debt, with rising costs, as evidenced by the falling annual investor share of new lending,” she said.
“Discussions of higher taxes in Queensland and Victoria will only act as a deterrent for future investors who seek certainty.
“For example, the Victorian government is looking to introduce a levy on short-stay
accommodation providers from 2025 onward.
“While it might help boost overall supply and raise revenue for social and affordable housing, this could create negative sentiment among investors, discouraging them from entering the rental market even further. In a time of increasing demand, policies should aim to encourage investors and not disincentive them.”
Dr Powell said while rents continued to rise, the rate of growth had slowed to 3.4 per cent.
But while they’ve eased, that rate of growth across the combined capitals at 3.4 per cent is still high compared to that historical average,” she said.
“When you look at the 2010s, house rents, on average rose 0.4 per cent and units 0.6 per cent.
“So at 3.4 per cent over the most recent quarter, that is still a strong level of growth that we’ve seen.
“It’s just moving away from the extremities that we saw over 2022.”
Dr Powell said one other noticeable trend was that renters were again increasing the number of people per dwelling, with share housing rising in popularity.
She said during the pandemic, the number of people per home dropped, but this was starting to reverse.
“So we are starting to see an increase in the number of people per dwelling, and I wonder whether part of that reversal is due to affordability,” Dr Powell said.