Australia set for a rental ‘frenzy’ in 2021, expert says

As house price growth is expected to reach up to 15 per cent, many parts of Australia may see rents increase by $2,000 to $5,000 per annum, according to him.

“The reality is that Australia does not have enough housing supply for its existing 25.6 million population… Most of Australia had an undersupply of housing prior to COVID-19. While this has managed to cause quite a bit of inconvenience for Australian lifestyles, it has no ability to dump thousands of extra dwellings out of the sky.

“In other words, Australia is still undersupplied,” Mr Pressley explained.

While Sydney and Melbourne currently have a surplus of rental stock and declining rents, other locations across Australia have different stories to tell. 

According to Mr Pressley, as of the end of October 2020, Sydney and Melbourne’s combined population of 10.5 million people had more than 53,500 dwellings for rent to choose from.

Conversely, the remaining 15.1 million Australians across the other capital cities and regional areas only have a little over 20,600 dwellings advertised for rent during the same period.

The research head said that, while COVID-19 directed demand out of Sydney and Melbourne and into other areas, the pressure on rents in other areas was building well before the pandemic.

According to SQM Research data, Canberra, Sydney and Darwin had the highest capital city advertised median rents for houses at $648, $638 and $580 per week, respectively.

Meanwhile, the biggest capital city rent increase over the last decade was in Hobart, now with a median rent of $456 per week.

“Throughout the rest of Australia, it is becoming standard practice for property managers to frequently receive numerous applications to rent a standard house… Buyer’s agents have seen firsthand proof of multi-offer tenant applications, and the successful tenant paying $50 to $70 per week above the market’s median rent. 

“Five out of eight capital cities have a vacancy rate below 1 per cent. The pressure is intense,” according to Mr Pressley.

Supply problem

Moving forward, with employment and lifestyle opportunities driving acceleration demand, regional locations are likely to continue seeing high rent increases, Mr Pressley said.

Ultimately, the two biggest influences on rental demand in 2021 are local economic conditions and affordability, while the supply side is “98 per cent determined by the behaviour of mum-and-dad property investors”.

According to the research head, banks and governments would need to support those who generate 98 per cent of Australia’s rental supply in order to address the rental supply problem.

For one, he encouraged the Australian Prudential Regulation Authority to introduce credit policy parameters to support responsible borrowers and be proactive in helping to improve loan application efficiencies. Banks must also stop charging investors a premium interest rate, Mr Pressley recommended.

Further, state governments are advised to refrain from charging investors higher stamp duty, while city councils are discouraged from charging investors a premium on council rates.

Finally, Mr Pressley said that the federal government must conduct a serious investigation into the conduct of insurance companies to avoid “charging excessive insurance premiums, hiding behind fine print when a policyholder makes a claim, and rorting of real estate products”.