Supply pinch drives rental prices to record highs, report shows

Domain’s latest rental report showed combined capital city house rents are up by 1.9 per cent over the three-month period to September, slowing down from the 3 per cent price gains seen in the quarter to June. 

Despite the short-term reprieve, house rents are now up by 12.8 per cent on an annual basis. The figures represent a $60 per cent price gain over the 12-month period to September, with the average price of renting a house now at $530 per week. 

Meanwhile, units saw a whopping 6.5 increase in average rental prices over the September quarter — accelerating from the 3.4 per cent increase recorded during the previous three-month period. 

Over the year, unit rents are up by 16.7 per cent or $70, with the weekly rental price for the sector averaging at $490. 

According to Domain’s chief of research and economics Dr Nicola Powell, a “misalignment between supply and demand” has resulted in rental prices scaling new heights. 

“Demand pressures have been caused by a combination of factors, including the lack of affordable home ownership, changing household formation and the return of skilled migrants and international students,” the expert commented. 

“On the supply side, we have seen delays in building completions due to supply chain issues, weaker investment activity and the conversion to short-term rentals as tourists return.”

Dr Powell also reflected that the Reserve Bank of Australia’s monetary policy tightening cycle (which has pumped up the official cash rate from a record low of 0.10 per cent in May to 2.60 per cent in October) and creeping mortgage repayments had played a role in tenants absorbing increased costs. 

“The consecutive run of interest rate hikes may have also pushed some landlords to pass on additional home loan costs, while successive falls in the vacancy rate and record-low rental listings is worsening pressure on tenants,” Dr Powell said. 

While there is no “quick fix” to alleviate the supply crunch in rental markets, Dr Powell offered that there are solutions available. 

“If investor activity is encouraged, advance the build-to-rent sector and help tenants transition to home owners, if we encourage investors away from the short-term rental market and promote participation in social and affordable government housing programs through financial incentives, we will see some pressure ease in the rental market,” she explained. 

She also called on the government to roll out additional state-backed measures that could give low-income families a hand in dealing with the rental pain. 

“We also need to see greater participation from the government through an increase in rent assistance for low-income households, as this hasn’t risen in line with rents, and a stronger commitment to building more social housing,” she said.

“Although the government has committed to building more housing, we need to see further progress and a change in land use and planning rules to allow for more homes to be built in middle-ring suburbs.”

Dr Powell acknowledged that the country’s rental market is still “very competitive”; however, she highlighted that there are pockets in major cities showing improved rent affordability, including Macleod in Melbourne, Bellevue Hill and Collaroy in Sydney.

On another positive note, she pointed out that gross rental yields are continuing to rebound from record lows seen throughout the pandemic — a trend which is seen to attract more investors and, in turn, boost supply in the rental market. 

“Gross rental yields for houses and units are also improving and are at their highest point on record, so it’s a good time for investors to enter the Australian rental market, which will help alleviate some supply pressure,” Dr Powell said. 

Gross rental yields for houses and units stood at 3.25 per cent and 4.18 per cent, respectively, during the latest quarter. The figures represent a quarterly increase of 0.8 per cent for houses and 3.6 per cent for units. 

Melbourne and Sydney continue rental market revival

Taking a closer look at the capital cities’ rental markets, Sydney continues to power the rise in national rental prices, with house prices in the harbour city increasing by 4.8 per cent in the September quarter to $650 a week. 

The 14 per cent or $80 annual increase in house rental prices is the steepest year-on-year boost the NSW capital recorded since 2009, according to the report. 

Sydney’s unit prices are back at the pre-pandemic record high of $550 a week — representing a price increase of 4.8 per cent or $25 per week in the three months to September. On an annual basis, the figures are up by 14.6 per cent or $70 per week. 

While it has been the norm for house rents to be smashing new highs since the beginning of 2021, the report noted that the latest figures indicate a “stark change” for unit rents, indicating that the affordability issues of renting a house have made budget-conscious tenants shift to units. 

Domain also noted that Sydney is now tied with Canberra as the most expensive city to rent a unit and remains the second-most expensive city to rent a house.

Melbourne is also experiencing a post-pandemic rebound, with house rents rising to an all-time high of $460 a week following a 2.2 per cent increase over the quarter and 9.3 per cent year-on-year. 

The Victorian capital’s unit market also continued to turn around from sombre pandemic lows, as rents jumped 3.7 per cent over the quarter to $425 a week. It also saw its sharpest annual increase since 2008 at 14.9 per cent. 

Brisbanite landlords continued to enjoy favourable conditions, with house and unit rents rising to new record highs during the latest quarter. 

House rents in the Queensland capital hit a new record high of $550 a week following a 5.8 per cent increase over the quarter. The city also recorded the steepest annual increase on record, with house rents up 22.2 per cent over the year. 

Domain noted that Brisbane’s rents have risen for nine consecutive quarters — almost surpassing the longest stretch of growth the sector saw from 2006 to 2008. 

Brisbane’s unit landlords also continue to experience the longest stretch of continuous unit rental price growth among capital markets, rising for the fifth consecutive quarter.

It now costs $460 a week to rent a unit or apartment in the Sunshine State capital, following a 2.2 per cent increase over the three-month period to September. 

Compared to the same period last year, the average weekly rental price of an apartment or unit in the city is up by 12.2 per cent. 

Among the smaller capitals, Perth saw the highest annual increase in house rents, with prices 11.1 per cent higher compared to the same period last year. Currently, house rent in the West Australian capital stands at a median of $500 per week.

In Canberra, the long-running streak of rising rents came to an abrupt halt over the September quarter, with house rents declining for the first time in just over two years, down 1.4 per cent. 

However, the ACT capital continues to be the most expensive place to rent a house, with tenants expected to hand over $680 per week to their landlords. 

Surprisingly, Adelaide emerged as a unit market wildcard. Domain pointed out that Adelaide now has the tightest rental market across the country, with the South Australian capital tallying the sharpest quarterly rise in unit rents, increasing by 5.3 per cent to stand at an average price of $400 per week.