The rental market is tightening in Australia’s capital cities
A new rental report released on Thursday from PropTrack found demand for rentals has intensified in the capital cities, with enquiries per listing up 31.1 per cent.
But while demand grows, the supply of properties becoming available for rent remains historically low.
Combined capital city rental listings are down 26.3 per cent year-on-year to the lowest they’ve been since February 2003.
Sydney and Melbourne have had the biggest decline in the number of properties available for rent, and the biggest increases in enquiries on a per-listing basis.
Economic researcher Cameron Kusher, who wrote the report, said many people had left the Sydney and Melbourne markets during the pandemic.
“Now they’re coming back and also a lot of people that migrate to Australia from overseas are coming into those cities and exacerbating the shortage of supply,” he said.
“But keep in mind rents in Sydney and Melbourne have barely moved from where they were at the start of the pandemic.”
Over the 12 months to December 2022, Brisbane and Adelaide recorded double-digit rental growth, with Brisbane growing 11.4 per cent and Adelaide 11.8 per cent.
“Queensland does see overseas migration settle … largely in south-east Queensland, but nowhere near as many end up in this region as we see ending up in Sydney in Melbourne,” Mr Kusher said.
“We’re still seeing really strong interstate migration into Queensland from other states and territories.
“And we think that might ease off a little bit, but it’s likely to still be very much positive going forward.”
The report’s data gives a slightly different picture for regional Australia, where markets have seen demand for rentals ease and enquiries per listing fall by a third.
Regionally, total rental listings were 9.8 per cent higher year-on-year, the largest annual increase since June 2014.
But rental prices are increasing no matter where you live.
Rents in capital cities are up 10 per cent year-on-year in December, compared with 7.1 per cent for regional areas.
Are more property investors the solution?
The PropTrack report said the most effective way to alleviate rental pressures in the short-term was to encourage more investment in housing.
Shaun Bond, an economist from the University of Queensland, said corporate investors could play an integral role in alleviating the current pressure in the rental market.
“In Australia we call it the build-to-rent market, where we have large investors who build large apartment buildings that could be rented out,” Professor Bond said.
“That would help bring on large amounts of supply relatively quickly.
“Institutional investors have large amounts of capital that they could deploy in this area, plus they’re going to be more stable in terms of ownership.
“In Australia, the rental markets are heavily dominated by very small investors and as we’ve seen in this current rental crisis, at some point some of those investors would be happy to sell out and then those properties go into home ownership.”
Mr Kusher said planning for more supply could take about five years.
He said the quickest solution is to get more investors to buy residential properties that already exist and make them available for rent.
“If we look at the share of lending to property investors, it’s been below its long-term average since early 2017.
“There’s been a number of factors driving that; banks have charged investors higher interest rates, we’ve had credit-growth limits on interest-only and investor lending, state governments have put up land tax on investments and all of this combined has seen fewer investors entering the market but also more investors exiting the market.”
Mr Kusher said the best way to increase supply in the long term was to build more homes, specifically for rent.
“The way they increase supply is to get more people buying those investment properties or build a lot more properties and make them available for rent,” he said.
How did we get here, and what happens next?
Professor Bond said house prices were one of the biggest factors driving rental price increases.
“What we’ve seen with the increase in house prices, and very strong increase in house prices in some regions, is many landlords taking the opportunity to sell out of their investments,” Professor Bond said.
“So that is reducing the number of properties that are available to rent.”
Professor Bond said there had been strong interstate migration in Australia, including Queensland, where properties were being bought to live in.
“It’s great to see that families have that opportunity to secure a property, but where that was previously rented, it means that that house is no longer available to another tenant.”
Professor Bond also pointed to problems in the construction industry, including supply chain issues as well as financial difficulties within construction firms.
“Just at the time when we really need these new homes or new apartments for people to rent to cope with those big population increases in some parts of the country, the construction industry is having enormous difficulties, and they haven’t been able to keep up with supply.”
As for what happens next, Mr Kusher expects demand to continue.
“I think in 2023 we’re going to see an ongoing slowdown and an easing of rental market conditions in regional areas of the country,” Mr Kusher said.
“But I think in the major capital cities — Sydney, Melbourne, Brisbane, Adelaide, Perth — we’re going to see rental conditions tightened even further as more people come back to those cities and rental demand escalates.
“And this could even carry on into 2024.”
