70k new homes needed to rebalance the rental market: Domain

Most capitals have seen vacancy rates slide backwards once again after some positive gains through mid-2023.

Sydney and Perth have now hit a record lows, at 0.9 per cent and 0.3 per cent respectively. Melbourne, Brisbane, Adelaide and Darwin are close to record lows, all under 1 per cent.

Illustrating the long-term nature of the issue, Adelaide and Perth have now recorded a vacancy rate below 1 per cent for roughly three years, while Brisbane has held below 1 per cent for almost two years.

The firm estimated that for vacancy rates to return to healthy levels of between 2 per cent to 3 per cent, the nation needs to see an infusion of up to 70,000 new dwellings on the market – an amount that equates to roughly the number of homes found in Newcastle’s local government area.

According to Dr Nicola Powell, Domain’s chief of research and economics, dampened conditions for construction coupled with disincentives for investors have been two large contributors to the current rental shortage.

“Rental supply has suffered due to the sustained development undersupply and investors selling under holding pressure costs,” Dr Powell said.

Noting that this situation has been years in the making, she lamented that solutions would hardly appear overnight.

“There is no quick fix to ease the competitive rental market, as many factors are at play. One of the key factors is investors. They are currently reluctant to hold debt with rising costs, as evidenced by the falling annual investor share of new lending,” she said.

But though the market is lacking the stock levels it needs, renters may be glad to hear that rental price growth appears to be easing somewhat – though Dr Powell noted it’s largely due to renters being simply unable to meet higher price hikes.

Rent growth has slowed from extreme hikes seen throughout 2022 and earlier in 2023, however, the pace of growth still remains heightened compared to historical standards. For example, in the 2010s the combined capital rent rose 0.4 per cent on average for houses and 0.6 per cent for units. Over the September 2023 quarter, rents increased by 3.4 per cent.

“It is unusual for rent gains to decelerate when Australia’s vacancy rate is at a record low. This suggests an affordability ceiling is being reached as strained tenant budgets cannot keep pace with escalating rents and living costs,” Dr Powell said.

“These dynamics are likely to have led to a reconsideration of house shares or opting for a more affordable location, property type or size with recent RBA research suggesting that the average number of people per dwelling is rising,” she added.

Even so, asking rents continued their record-breaking streak of consecutive increases, pushing prices to new peaks. The combined capital median weekly asking rent is $600 for both houses and units – a 13 per cent increase for houses over last year and a 23 per cent increase for units.

Despite the continual rise across the country and within most capital cities, the pace of rental growth has eased over the September quarter compared to the previous quarter. The outliers to this, however, were houses in Melbourne and units in Adelaide, where price growth increased.

Melbourne is no longer the most affordable city in which to rent a house for the first time in over two years, losing its status to Hobart. Meanwhile, Brisbane has become the second most expensive city to rent a unit, tying with Canberra.

Melbourne, Adelaide and Perth led the rental gains over the September quarter, while Hobart and Canberra experienced slightly improved conditions for tenants.

But even in those cities, the report made clear: “Australia remains firmly a landlords’ market.”