Australia’s Rental Crunch To Worsen With Little Relief In Sight

There are “troubling” signs that renters will face worsening pressure in the months ahead as property listings hit a decade low and tenant demand skyrockets.

Owen Wilson, chief executive officer of REA Group – publisher of realestate.com.au – described current conditions as being a “rental crunch” and warned there is little relief in sight.

Speaking at a panel discussion about Australia’s economic outlook, hosted by Sky News and featuring business leaders as well as Treasurer Jim Chalmers, Mr Wilson said the current discussion about real estate has focused entirely on buyers and sellers.

“The bigger issue for our market is [rental property] supply and at the moment we’re looking at a rental crunch,” Mr Wilson said.

Rental listings have slumped to their lowest level in 10 years, forcing prices “up and up” and impacting the Australians who can least afford it, he said.

“We talk about people with mortgages – people who are renting are in for a big rise in what they have to pay for accommodation.”

A combination of low stock, high demand, and increased rental prices are leading to this crunch, adding pressure to the household budgets of already struggling tenants.

“The fact that the supply of rental properties dwindled during a period in which population growth essentially stopped is troubling,” said PropTrack economist Anne Flahertly.

“Now that Australia’s population is beginning to grow again, the supply of rental properties is likely to tighten further.

“In addition to increased demand for rentals from international students and migrants, the return of tourism has meant that properties that switched from being short-term holiday rentals to long-term rentals during the pandemic, are now returning to the short-term market.

“These factors will drive up competition for rentals and contribute to further rent growth.”

Supply is way down

Across the country, active rental listings are down by 19.4% year-on-year but the situation is worse in the biggest markets.

In Sydney, rental listings are down by 24% year-on-year, while in Melbourne they have slumped 27% and in Brisbane they have declined by 23%.

Vacancy rates are also now at a record low, hitting 1% in May 2022 – for the first time in 16 years, according to SQM data.

“In recent years a shortage of rental accommodation has emerged across Australia,” Ms Flaherty said.

“The shortage has been particularly felt in regional areas with the COVID-driven ‘push to the bush’, though capital cities are now also feeling the crunch with even the Melbourne and Sydney CBDs seeing vacancy dip below pre-COVID levels.”

Ms Flahertly added that one of the major contributing factors to the low supply of rentals is the lack of investor activity within the market over the past couple of years.

“Throughout the pandemic, more investors sold properties than bought. This has decreased the total supply of rentals just as the demand to rent is increasing again. The return of tourism has also led to some properties returning to the short-term rental market, further reducing supply.

“An undersupply of rental properties is driving up competition among renters which, in consequence, is contributing to the higher rents we’re seeing,” she said.

Demand is high – and getting higher

Across the country, rapidly rising demand for rentals is creating fierce competition when a property does become available.

Nationally, the number of days a rental is on realestate.com.au before being snapped up has fallen by 13%, from 23 days in May 2021 to 20 days in May 2022.

In Sydney, days on site decreased by 22.2% (27 days down to 21 days); in Melbourne days on site is down by 30.3% (33 days down to 23 days); and in Brisbane, days on site slumped by 21.2% (19 day down to 15 days).

With the starting line for first-home ownership becoming increasingly difficult to reach thanks to higher interest rates and more expensive property prices, renting is the only option for many Australians.

Prices are going up and up

The combination of very high demand and very low supply has led to rent prices increasing sharply.

Take Victoria, where in the suburb of Canterbury house rents jumped by 12% from a median of $895 to $1000 in just the past three months.

In New South Wales, rent for houses in Denistone have increase by 17% over the quarter to May, from $640 per week to $750 per week.

In Queensland, a house in Chelmer increased by 11% from $720 per week to $800 per week.

Nationally, a house in Attadale in Western Australia saw the greatest increase in price, jumping by 29% from $600 per week to $775 per week.

Renters are also concerned that the interest rate hikes will impact their weekly rental payments as landlords with larger mortgages try to offset the cost.

With increased rents coming at a time of rising cost of living pressures, more tenants could find themselves in rental stress – paying more than 30% of their income on housing – for the first time.

What needs to be done?

According to industry leaders and economists, the solution to the rental crunch is to boost the level of housing stock to keep up with demand.

But that takes time and money – and a lot of coordination by multiple levels of government, as well as collaboration with industry.

“Policies that encourage the development of more rental properties will be key over the coming years, particularly as population growth picks up again,” Ms Flaherty said.

“For example, this could include removing tax barriers to investment in build-to-rent.”

Leo Patterson Ross is the chief executive officer of the Tenants Union of New South Wales and said renters have been forgotten for too long.

“The National Housing and Homelessness Agreement, which covers funding from the Federal Government to the states and territories, is being reviewed,” Mr Patterson Ross said.

“Government can act to make sure that the NHHA funds come with greater conditions, like that states and territories can’t maintain housing laws and practices that make it harder to find and keep secure stable housing, such as no grounds evictions, excessive rent rises , and poorly maintained or low quality housing stock.

“Ensuring people have enough income to live, feed, and house themselves is crucial. Urgently reviewing and raising welfare and pension payments, including Jobseeker, rent assistance and others, will make a big difference as well not only to the households but to the country as a whole as an economic stimulus.”