29 January 2024

A typical renter in a capital city is paying $150 more in rent each week compared to two years ago, a new report has found, as strong demand for a record low number of rentals pushes up rents across Australia.

Strong demand from renters amid a critical shortage of rental properties has driven the price surge, with more people than ever competing for a shrinking supply of homes.

The number of available rental properties sank to a record low in December, with total rental listings down 4.7% over the year and 30.2% below the 10-year average for December.
PropTrack director of economic research Cameron Kusher said the jump in rents was a result of the ongoing imbalance between supply and demand, which has worsened due to population growth and rental supply bottlenecks.

“The rapid increase in Australia’s population exacerbated rental market challenges, as most people migrating to Australia become renters,” he said.

“Given the persistent low supply of rental stock and the significant demand for accommodation, there is a critical need for additional housing, particularly in the major capital cities.” The national vacancy rate was 1.1% in December, with vacancies lower for houses (0.9%) than units (1.7%). These figures were lower than a year ago, and well below levels considered normal.

“Prior to the pandemic era, the rental vacancy rate nationally was typically around 2.5%, highlighting just how much conditions have tightened,” Mr Kusher said.
“With limited new rental supply coming to market and persistent strong demand for rentals, the rental vacancy rate is anticipated to remain at low levels.”

Where rents grew the most in 2023

Capital city rents jumped 13.2% in 2023, while regional rents grew 4.2%, the report found.

Of all the capitals, rents grew the most in Perth, jumping by 20% in the year to December 2023 to a median of $600.

Perth has one of the lowest vacancy rates of all the capitals, at 0.73% – second only to Adelaide where the vacancy rate is 0.69%.
Melbourne’s median rental price climbed 18.3% to $550, with a reduction in the number of rental properties putting further pressure on prices. New rental listings were 14.9% lower than in December 2022, according to the report..

Rents in Sydney went up 16.7% to a median of $700, while Adelaide’s median grew by 12.5% to $540, Brisbane’s median rose 9.1% to $600 and Darwin’s median edged up 1.7% to $590. Canberra’s median rental price remained flat at $610.
obart’s median rent fell by 4.8% to $500, with the total number of rental listings increasing 22.2% over 2023. While the city’s vacancy rate rose over the year, it’s still only 1%, indicating a very tight market.

Rising rental yields draw in investors
With rental price growth outpacing home price growth in many markets, gross rental yields have increased, the report found.

The national gross rental yield increased to 4.3% in December, which is the highest level since November 2020. Unit rental yields are now the highest since September 2019, at 4.8%, while house rental yields rose to 3.8%.
While increased investor lending over 2023 shows investors were returning to the market, Mr Kusher said many investors were still selling properties, and the rebound in investment wasn’t enough to sufficiently improve rental stock levels.

“The best way to address insufficient supply is to build more homes,” he said. “However, dwelling approvals and commencements are at decade lows and it is unlikely this will change substantially in the near-term.”

The outlook for the rental market in 2024

Although Australia’s national median rental price increased by 11.5% over the past year to $580, this pace of growth was slower than in 2022, when rents jumped 15.6%.

Only Sydney, Melbourne, Perth and regional Western Australia had faster growth in 2023 than in 2022.

While rents are expected to keep rising in 2024, Mr Kusher said affordability constraints were limiting how much landlords could lift rents, especially in the regions, which could slow the pace of growth. “Despite an expectation of further rental increases, we anticipate that rent price growth will moderate in 2024,” Mr Kusher said. 

“In some smaller capital cities and regional markets, a further slowing of rental growth, with the potential for rental falls, is likely.”