Finding a rental property continues to be difficult across the country, even with a lift in the number of available homes in recent months.
New data shows renters are responding by offering to pay above asking prices to secure a home.
By comparing advertised rents and those reported in new rental bonds, we can estimate the extent of price bidding required to secure rental properties.
To understand what is driving this response from renters, we will explore the reasons for the tightness of the market and look into the characteristics of areas where renters have paid the most above advertised prices.
The national rental vacancy rate - which measures the proportion of rental properties currently available for rent - reached an all-time low of 1.31% in March 2023.
Over the past year, rental vacancies in combined capital cities have declined by 0.38 percentage points, meaning there are now 21% fewer properties to rent than 12 months ago.
Those that do get listed are also being rented out quicker.
The national rental days on market - which is the number of days a property is listed on realestate.com.au before being rented - has fallen by 24% or 8 days since the start of 2021.
In Australia's two largest capital cities - Sydney and Melbourne - rental days on market fell by even more. Properties are now being rented out 30% quicker, on average, compared to two and a half years prior.
Multiple factors are behind the tight rental market.
Demand for rentals has grown significantly and remains high, largely due to a reduction in average household size since the pandemic, and more recently, the increase in net overseas migration.
Material shortages have caused delays in building completions, resulting in a slower rate of new home construction. This imbalance between supply and demand is driving up prices.
With the rental market so tight, it is no surprise that renters are offering more to secure a property.
A comparison between actual weekly rents, obtained from state tenancy boards, and advertised rents on realestate.com.au over the March 2023 quarter shows just how much more tenants are paying.
The amount tenants end up paying for rent is higher than the advertised rent on-site in almost half of Sydney's local government areas (LGA).
This means that many people are voluntarily offering more than the advertised price to increase their chances of being chosen over other prospective tenants.
Since December 2022, agents in NSW are no longer allowed to invite people to offer more than the advertised rent price but renters are still able to offer more voluntarily.
The difference between the actual and advertised price was also larger in areas in closer proximity to the CBD, showing just how tight these rental markets have become.
In the Hunters Hill and Bayside councils, new median bond prices are 23.1% and 19.5% higher than median advertised rent prices, meaning renters in these areas are having to bid at least a fifth more than the listed price to secure a rental.
While preferences for smaller household sizes and slow construction have contributed to the tight rental market, the return of migrants, face-to-face university and the shift to hybrid working have been key drivers of demand, resulting in higher offers on inner-city properties.
In Melbourne, a similar trend is evident with actual rents higher than advertised rents in 14 of 33 councils. However, renters in middle-ring areas (11-25kms from the CBD) were also paying above asking price for rentals.
Yarra, Port Phillip and Brimbank were among the most competitive council areas with people respectively paying 7.6%, 6.2% and 5.3% more than what was advertised to ensure that they were chosen as tenants.
The willingness of renters to pay above the advertised rent in the largest capitals reflects the dire situation, with rental markets tightening most in the past year.
In contrast to Sydney and Melbourne, those renting in Brisbane typically paid less than the price listed on-site in the March 2023 quarter.
Analysis of the historical quarterly bond data and advertised rents showed that this trend was also evident in previous quarters.
It may be the case that properties in Brisbane are being listed at higher prices than what renters are required to pay to secure a rental even though vacancy rates are low.
Vacancy rates are likely to remain low over the rest of this year. While there have been some slight improvements in recent months, finding a rental will continue to be difficult.
With overseas migration returning at a time when households are still smaller following pandemic disruptions, demand is expected to remain high, particularly in regions popular among both migrants and Australians such as the inner-city.
Properties are likely to be rented out quicker and potentially at more than the advertised price as renters try to improve their prospects of securing a home.
To improve market conditions and ease pressure for renters, we need to focus on increasing supply as housing demand looks set to remain strong.
Decreasing the barriers to entry for investors and increasing the number of homes being built, particularly in areas of high demand, are crucial in making rentals more affordable.