Strong rental competition in the capital cities is prompting prospective tenants to offer more than the advertised price, particularly in Sydney and Melbourne.
In some cases, renters are offering more than 20% above the advertised asking price to outbid others for available homes.
According to new PropTrack data, national rental vacancy rates - the share of rental properties that are available for rent - inched down 0.04 percentage points to 1.43% in July. But vacancy rates have halved since the pandemic as rental demand has increased.
Rental market conditions in capital cities are especially tough, with vacancies down markedly over the past year in Sydney, Melbourne and Brisbane.
These difficult conditions can be attributed to the immense growth in demand following the driver for more space since the pandemic and the rebound in migration.
Shortages in building materials have also caused delays in the construction of new homes.
Competition for available rentals have intensified as a result and renters living in inner-city areas are being hit hardest as CBDs have opened up for work and study.
To secure a rental over other prospective tenants, those residing in these areas are offering to pay a premium above the advertised price.
This is evident when we compare actual weekly rent (from rental bond data) to advertised rents on realestate.com.au during the March 2023 quarter across local government areas (LGAs) in our three largest capitals.
|LGA||State||Weekly median advertised rent||Premium offered|
Of the 10 LGAs with the largest disparity between actual and asking rents, more than half are in the inner ring of their respective cities. For Sydney this is less than 12kms from the CBD and for Melbourne less than 11kms.
Renters in Hunters Hill and Bayside councils in Sydney offered the most above advertised price among all capital city LGAs with people typically paying 23.1% and 19.5% above asking prices, respectively, to secure a property.
In Burwood, Ryde and Canada Bay, those looking to rent have also faced strong competition - median new rental bonds were 10-16% higher than prices listed on-site.
Agent-invited rent bidding has been banned in New South Wales since December 2022 and in Victoria since March 2021, which means that renters are volunteering to offer above asking prices to outbid their competition for available rentals.
This reflects just how tight inner-city rental markets have become.
Although there have been slight improvements in vacancy rates over the past few months, with no short-term solution to bolster supply we expect rents to continue rising for the remainder of the year.
It is also likely that renters, particularly those residing near CBDs, will continue offering a premium to secure homes as demand remains at an elevated level.