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Surging demand and tight supply are set to continue the rental pain for many Australians, according to Westpac.
Following last year’s record annual growth of 10.2 per cent, Pat Bustamante and Jameson Coombs, business bank economists at the big four bank, forecast advertised rent prices to record double-digit growth for the second year running, with an 11.5 per cent increase forecast for 2023.
Australia’s rental crisis seeds were sown during the COVID-19 pandemic when constant restrictions resulted in people spending more time in their homes and therefore hunting for more living space. This led to a decline in the average number of people residing in a dwelling, and in turn, fewer rental vacancies.
These conditions created an environment conducive to sharply increasing advertised rents, with the national median rent ending 2022 at $555, with Canberra ($681) and Sydney ($679) being the two most expensive markets.
With the pandemic firmly in the national rear-view mirror and an absence of the once common border and wider societal restrictions, pressure is expected to further mount on Australia’s rental market with the return of migrants and international students — especially those from China buoyed by a recent government decision — likely to tighten the national rental market.
Additionally, Westpac revealed upward pressure on rents has been birthed by the Reserve Bank of Australia’s (RBA) nine consecutive interest rate rises as landlords pass their higher interest costs onto tenants.
On the supply side, relief from new apartment developments will come with a longer than usual lag, according to the big four bank’s economists, who explained: “The rise in interest rates and building costs has constrained the residential construction pipeline, along with the country’s well-publicised labour shortages.”
Recently, the Housing Industry Association (HIA) revealed expectations that Australia’s housing construction will hit a decade-long low next year, with just 96,300 new homes forecast to be built in 2024, a factor that points to further weakness in the residential construction market.
Both economists believe higher rents will “entice investors to return to the market to offer new supply in certain pockets, but we expect this could take some time given higher interest rates and elevated construction costs.”
Rising advertised rents are expected to take time before feeding into existing rents due to the time taken for rental agreements to expire, though it is believed once this occurs, existing rents will increase by 7.5 per cent this year on average, marking the largest increase in 15 years.
With the total rental bill for the one-third of the Australian population who rent set to lift by up to $10 billion this year on top of a $5 billion rise last year and housing costs as a share of income hitting record highs equivalent to five percentage points higher than households with a mortgage, it remains to be seen how renters will deal with higher prices.
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