Three reasons rent growth could slow in 2024

There could be some relief on the way for struggling renters, with rental growth likely to start slowing down according to an expert.

CoreLogic, Head of Research Australia, Eliza Owen said the sharp escalation in rents over the past three years, could be nearing its end.

She said the cash rate reaching a peak and potentially falling would likely start to weigh on rent increases.

While slow income growth and stretched affordability would likely see rents reach their maximum.

Ms Owen said rents moved with interest rates, and interest rates could be on the way down next year. 

“Annual growth in rent values and interest rates move together over time,” Ms Owen said.

“In 2024, each of the major banks is now forecasting a decline in the cash rate. 

“A reduction in interest rates could increase demand from housing investors, and increased investment purchases add to rental supply, which may serve to lower rent growth.”

She said expectations that the RBA would stop lifting rates this year could contribute to an early recovery in investment activity, which would then boost rental supply.

According to Ms Owen, rental affordability is also stretched.

“High growth in rent values has seen an increase in the share of income required to service new rents, which was estimated to be 30.8 per cent nationally at March 2023,” she said.

“CoreLogic’s measure of rents have increased 29.3 per cent since a low in August 2020, or the equivalent of a rise in median weekly rents of $134. 

“Rent value growth is likely to slow because of base effects alone, but renters also tend to be on lower incomes, which means there could be a ceiling on how high rents can go before tenants adjust their housing preferences.”

She said this would likely mean more renters consider things like share houses, while others might move to more affordable areas.

“In the 12 months to June last year, ABS data showed more affordable rental markets like Logan – Beaudesert and Ipswich with the first and third highest volume of net internal migration across the country,” Ms Owen said.

“This overtook the Gold Coast, which had the highest net internal migration in the previous year. 

“Such internal movements could ease demand in the most expensive rental markets, bringing down growth in the national rents.”

Ms Owen said although rent increases were likely to slow, affordability challenges would persist.

“On top of cyclical factors driving a slowdown in rent growth, more can be done to ease rental values and make renting better,” she said.

“The recent national cabinet proposals for housing are a great start. 

“The ambitious goal of 1.2 million well-located homes to be built in the next five years would help to bring rents down.” 

She said minimum standards around the quality of rentals is also a positive step for improving the nature of the tenure. 

“The provision of more social and affordable housing can also help to protect lower income households from the extreme fluctuations in rental values seen in the past few years,” Ms Owen said.

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