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An estimated 500,000 Australians moved overseas following the pandemic, a trend that should have resulted in less demand for homes and, subsequently, cheaper rents. However, with record-low vacancy rates and an increase in rents, Melbourne is on the verge of a rental crisis.
Despite Melbourne being the most affordable city in Australia to rent a home, the city’s rental market is in a strained state. According to recent Domain data, Melbourne’s vacancy rate dipped to 1.8 per cent in March – a significant drop from the 4.3 per cent reported in March last year.
While it is positive homes are being leased, a tighter rental market leads to more competition and higher rents.
Philip Webb Real Estate manages roughly 5,500 rental properties across Melbourne and has been recording a rental vacancy rate of below 1 per cent for consecutive months in 2022. Last month, there was a 10 per cent jump in rental prices with released properties and the number of days a property remained vacant between leases dramatically dropped to just eight days.
So, what has triggered this surge in demand and restricted supply of rental properties?
Residential rental providers fled the Victorian market at concerning levels in 2021. Some were taking advantage of Melbourne’s strong market conditions, while others were unable to meet the demands of the changed Residential Tenancies Act. With a significant portion of our rent roll in Melbourne’s east, Philip Webb Real Estate witnessed more rental providers exit the market last year than enter it – a trend that would inevitably result in significantly less stock on the market.
While stock levels were decreasing, demand was on the incline. Those who returned home during the pandemic to ensure financial security have started feeling confident about re-entering the rental market. The return of international students at the start of this year has also contributed to the tightening of the market.
With fewer people looking to rent in the central business district following the pandemic, demand to live in Melbourne’s outer suburbs has soared. Two-, three- and four-bedroom homes with backyards made up 92 per cent of homes leased by Philip Webb in April. One-bedroom homes made up just 1 per cent. Popular suburbs include Ringwood, Doncaster and Box Hill – outer suburbs with well-established infrastructure, access to transport and premium schooling.
While this tightening of the market has left renters scrambling, there is an opportunity for residential rental providers to re-enter the market and capitalise on the jump in median rental prices and high demand. In fact, Melbourne’s rental market is relying on their return to alleviate Melbourne’s strained rental market.
Anthony Webb is the chief executive of Philip Webb Real Estate.
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