‘There is no quick fix to the rental crisis’, expert says

Speaking on a recent podcast episode for REB, Domain chief of research and economics Nicola Powell said that the nation’s record-low vacancy rate of 0.8 per cent in October is “something that has never been seen before” and indicates a “tight rental market”. 

With the low vacancy rates, Dr Powell acknowledged that tenants are facing “challenging conditions”. 

But she highlighted that the supply crunch varies depending on the location. “Some of those vacancy rates in some of those capital city areas are slightly higher, but largely these challenging conditions across Australia,” she said. 

For areas that have extremely tight conditions, such as Adelaide, with a 0.2 per cent vacancy rate, or Perth, where vacancy rates are at 0.3 per cent vacancy rate, Dr Powell acknowledged that tenants looking to secure a new lease would find it to be a harder undertaking. 

“We’ve seen overall across Australia a record-low level of rental listings. Over the past year, we’ve seen rental listings decline by almost 50 per cent, so it’s a big drop over the last 12 months. We’ve never seen these conditions before. As I said, they are slightly different depending upon your capital city,” she explained. 

Given the current conditions, Dr Powell said the country is squarely a landlord’s market. 

“[We] tend to say 3 per cent vacancy rate indicates that it’s a balanced market, it’s a balanced market between tenants and landlords/investors. When it goes below 3 per cent, and particularly when it gets below 2 per cent, that’s really when you’re getting it swinging towards and more favourable for landlords.

“And it is firmly in a landlord’s market Australia-wide. So this isn’t just isolated to one particular area; this is a rental crisis that is happening across many regions across Australia,” she remarked. 

And while the rental market has only been recently defined to be in a state of crisis, Dr Powell argued that “this isn’t something that has been created overnight or even been created over the last 12 months”.

“We’ve got to this point in terms of this rental crisis over a period of time; this has been building for a number of years,” she commented. 

For the rental market to reach this crisis point, she pointed towards the lack of supply of affordable housing, as well as acceleration in property prices really locking tenants into the rental market for longer than they had hoped as the main drivers of the currently tight rental conditions. 

“We saw a boom during the pandemic that we’d never seen before across Australia. And things like even Australia hasn’t built enough social housing.

“And so what that means is we have some low-income households that are in the private rental market, which is what we’re talking about here, and they’re not in social housing,” she stated. 

On top of this, she predicts that the rental market — which is already defined by enormous demand that far exceeds supply — will see a further tightening of the screws. 

“We have got that increasing migration from overseas, we’re seeing that return of foreign students, and that is placing additional pressure on our rental markets at a time when it’s already strained,” she stated. 

While Dr Powell admitted that “there is no real quick fix to alleviating these tight rental conditions”, she raised that there are several ways to tackle the problem.  

“I think there are a number of things that we could do to help to provide that boost in supply or even alleviate the demand. 

“We do need to encourage investment activity. It’s clear that we do need more rental properties across Australia, but it’s also things like advancing the bill to rent sector, providing additional rental assistance for those low-income households, more social housing, and really helping tenants transition to being home owners to take away some of those demand pressures,” she stated. 

With affordability at the epicentre of Australia’s housing problem, Dr Powell also said it was “encouraging” to see the government shining a spotlight on the supply side of housing in its budget. 

“I think the supply side is an important part of the equation. It’s really pleasing to see that the government is focusing on that and trying to address that,” she stated. 

As December and January marks the rental changeover period, the expert said that a seasonal boost of supply would provide some breathing room for the market in the next three months. 

“[What] you tend to see seasonally is a lift in available rentals because this is when we see that shift within rental market,” she stated. 

However, she acknowledged the cyclical tightening of conditions once the school year begins. 

“I do think that it’s going to be interesting to see how tight the rental market is after we see that wave from the new university year starting,” she stated. 

She also underlined that just as the rental markets enter cycles, there are also other factors that must be taken into account when understanding what direction the market will go in the future, such as the skill shortage, the great tourism revival, and the return of foreign students, among others. 

“This all feeds into the rental market conditions as well, because what you find, particularly when tourism really ramps up, what we’ll see is some investors will be lured to the short-term rental market, and that will have an impact on the long-term rental market,” she said.

She expects tenants will continue to do it tough, but offered that better renting conditions are not something that’s completely out of the question. 

“I do think the outlook is going to be a tight one for tenants, but I think that as long as we continue this conversation around how we are going to address this affordable supply and how we are going to address the housing and particularly rental crisis that we are seeing, changes should come,” she concluded. 

Listen to the full conversation with Dr Nicola Powell here.