Rent growth to slow in 2024: CoreLogic

CoreLogic provided several reasons behind slowing rental growth becoming one of the pre-eminent housing market trends throughout 2024, with perhaps the most notable factor being the state of the national cash rate, which has been on pause in recent months and is expected to drop moving towards the latter half of 2023 and early months of next year.

In the eyes of the research firm, the cash rate moving in the opposite direction is expected to spur both first home buyer and investor activity as the cost of borrowing eases.

Research from CoreLogic points to rental growth and the cash rate moving in unison over time.

According to the organisation’s head of Australian research, Eliza Owen, each of Australia’s major banks are forecasting cash rate declines next year.

She believes “a reduction in interest rates could increase demand from housing investors, and increased investment purchases add to rental supply, which may serve to lower rent growth”.

Already, investment activity has begun picking up, with investor loans up on the beginning of the year.

In addition to slowing cash rate growth over the coming months, Ms Owen outlined reduction income growth could also positively impact the national rental market as housing preferences shift in line with income.

Throughout the pandemic, increased income impacted national vacancy rates through the break-up of share houses. Ms Owen explained “people could afford leases on more spacious properties”, which she noted “contributed to lower stock levels as households spread out across the dwelling market”.

However, as 2023 progresses towards its conclusion, she explained income growth could slow as the monetary policy’s impacts on the economy begin taking further effect.

“The unemployment rate rose 3.7 per cent through July,” she said, adding “annual growth in the WPI slowed to 3.63 per cent in the latest print”.

“As income growth slows, renting households may look to adjust their housing situation, and re-form share houses.”

This trend of household sizes returning to pre-pandemic levels has begun taking effect in regional Australia, and Ms Owen detailed this shift has started to seep into capital city markets.

Additionally, she pointed to stretching rental affordability across the country forcing more Australian tenants to migrate to affordable pockets of the country, a factor she believes may limit how high rental growth can go.

“Rent value growth is likely to slow because of the base effects alone, but renters also tend to be on lower incomes, which could place a ceiling on how high rents can go before tenants adjust their housing preferences,” Ms Owen explained.

Internal movements of Australians flocking from more expensive markets into affordable areas “could ease demand in the most expensive rental markets, bringing down growth in the national rents”.

Ms Owen insisted slowing rents should not incite a slowdown on reforms.

“Importantly, although we are likely to see a further slowdown in the pace of rent increases, rental affordability challenges are likely to persist,” she said.

“On top of cyclical factors driving a slowdown in rent growth, more can be done to ease rental values and make renting better.”

She commended the national cabinet’s recent commitment to building 1.2 million new homes over the next few years as capable of bringing rents down, before noting minimum standards around the quality of rentals as a “positive step for improving the nature of the tenure”.

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