The persistent undersupply of properties available to rent is pushing vacancy rates lower, and with rental demand outstripping supply, weekly rents are still increasing rapidly.
New PropTrack rental vacancy data for August shows markets have tightened further, with vacancy rates falling to a new record low.
The national rental vacancy rate is now sitting at 1.10%, after falling 0.14 percentage points in August.
Vacancy rates deteriorated over the month in every capital city except Darwin, with the sharpest drops Canberra (-0.26 ppt) and Sydney (-0.19 ppt), and vacancies in Perth hitting a record low.
The supply of vacant rental properties in regional areas has also deteriorated, with the vacancy rate falling to 1.10%. Regional SA and Queensland are the tightest markets regionally, with the vacancy rate sitting below 1%.
Since late 2021, rental market conditions have tightened considerably in city markets that were hit hardest by the pandemic, spurred by smaller households, cities springing back to life and the return of overseas arrivals. This is particularly the case in Sydney and Melbourne, where vacancies have more than halved, falling 2.21 and 4.14 percentage points respectively since September 2021.
Although household sizes have begun to increase again in both capital cities and regional areas — likely because of strong rental price increases and tough conditions — that shift back to larger households (reducing rental demand) is being offset by resurgent population growth which is forecast to continue.
Data from the Australian Bureau of Statistics shows Australia’s population grew by 2.2% in the year to March 2023 – the fastest pace since late 2008.
At the same time, the pipeline of new supply remains constrained, with overall approvals running at near decade lows and construction activity having slowed, worsening the cumulative housing shortfall. Growth in the supply of new housing is limited at a time when there is already a shortage.
With demand running ahead of supply, conditions tightening significantly over the past year in Sydney and Melbourne, and vacancies remaining below 1% in Brisbane, Adelaide and Perth, there’s little hope of reprieve for renters.
Conditions where most markets remain historically tight make it extremely difficult for renters to find a home. This has caused to weekly rents to rise, with advertised rents in the capital cities up by 14.6% over the year to August 2023.
With household incomes and wages growth only slowly picking up, rising rents mean tenants are likely to be spending a growing share of their income on housing.
The rental crisis is even more dire for low-income renters and those on welfare benefits, who face a market that has never been less affordable.
Tight rental markets and significant rental price increases have caused rental affordability to dwindle, and the share of “affordable” rentals remains at low levels across the country.
Last month, only 73 (0.06%) of rental properties across the entire country on realestate.com.au were affordable for a single person on JobSeeker, 108 (0.09%) for a single living off the pension alone and 1689 (1.44%) for those earning the national minimum wage.
Even with the national minimum wage increasing by 5.75% from 1 July 2023, renters living on the minimum wage can afford just 0.4% of homes listed for rent in Sydney and 0.6% in Melbourne. The number of affordable rentals has halved in Melbourne and almost halved in Sydney over the past year.
A person on JobSeeker will find even fewer rental properties are affordable. With the strong rental prices increases we’ve seen, the number of affordable rentals for those on JobSeeker has fallen by a third over the past year. In regional Queensland and South Australia, of all properties listed for rent in August 2023, just one would be affordable. This clearly shows that those out of work face dire affordability conditions and very high levels of housing stress.
The situation is not much better for pensioners and unsurprisingly has also worsened, with the number of affordable rentals falling by 30% since August 2022. A single age pensioner looking for an affordable rental faces very limited options, and in some capitals, no properties listed for rent in August 2023 would be deemed affordable.
Affordable rental homes were measured as rental properties listed on realestate.com.au where advertised weekly rents were less than or equal to 30% of the minimum wage, JobSeeker or basic pension for singles.
The data highlights that not only is there a shortage of available rentals but a critical shortage of affordable rentals, demonstrating the urgent need for increased funding and support for affordable and social housing.
Other measures of support also fall short. Although the 15% increase to Commonwealth Rent Assistance announced in the 2023 federal budget was the largest in more than 30 years, rent assistance payments have long fallen behind soaring rental prices.
Broad reaching rental price rises across most markets have increased financial stress among renters, with insecure housing tenure compounding the problem.
The good news is investor activity has picked up, with investors re-engaging in the market and investor lending returning to comprising around a third of new credit. That’s well up from the 2021 lows of closer to just one fifth of new lending.
At the same time, sales of rental properties have slowed, meaning rental stock is growing at pre-pandemic rates.
But unfortunately, reprieve for renters isn’t in reach. Demand remains well above pre-pandemic levels, vacancies are historically low with available rentals in short supply and properties continuing to lease quickly. As a result, rents are continuing to climb at a fast pace, with further increases expected.
This is particularly the case in Sydney, Melbourne and Brisbane, where most new arrivals to Australia first land and rental supply is tight. Renters in Adelaide and Perth also face incredibly tight conditions.