Rent Rises Easing Despite Record Low Vacancies

Despite the pace of rental growth easing, rental availability tightened in September with vacancy rates falling to record lows across the country.

CoreLogic’s Quarterly Rental Review for 2023’s third quarter shows rental values rose 1.6 per cent over the quarter, down from the 2.2 per cent rise of the June quarter and a full percentage point below the recent peak rate recorded over the three months to April (2.6 per cent).

This took the annual pace of growth down from a revised peak of 9.6 per cent in the previous 12 months to 8.4 per cent in the year to September.

However, a continued shortfall in rental listings caused the national vacancy rate reduce to a new record low of 1.1 per cent in September as the total count of national rental listings fell to its lowest level since early November, 2012. 

CoreLogic Economist and report author Kaytlin Ezzy said there were several factors at play driving the slowdown in rental growth amid such limited rental availability.

“Worsening affordability continues to be a significant factor placing downward pressure on the pace of rental growth in recent months,” Ezzy said.

“After recording a small dip during the first few months of Covid, national rents have risen for 38 consecutive months, taking rental values 30.4 per cent higher since July 2020 and adding the equivalent of $137 to the median weekly rent.

“With the rising cost of living adding additional pressure on renters’ balance sheets, it is likely tenants have hit an affordability ceiling, seeking to grow their households to share the growing rental burden.

“The situation of low rental vacancy rates and insufficient housing supply is broad issue impacting regions around the country to different extents.

“Record high net overseas migration, fuelled by a combination of an increased flow of new arrivals and weaker departure numbers, coupled with a continued shortfall in rental listings, sent the vacancy rates to new record lows across the combined capitals (1.0 per cent) and combined regional markets (1.2 per cent).”

During the four weeks to October 1, the total count of national rental listings fell to its lowest level since early November 2012, with just 90,153 properties listed to rent. This equates to a rental shortfall of approximately 47,500, with total listings 15.1 per cent below the levels seen this time last year and 34.5 per cent below the previous five-year average. 

Rental growth across the capital cities continues to outpace the combined regionals, with rents up 1.9 per cent and 0.7 per cent respectively over the third quarter.

▲ Rental values rose 1.6 per cent over the September quarter.

The pace of rental appreciation ease over the quarter, falling 80 basis points across the capitals and 10 basis points across the regions.

Gap between house and unit rents expands

Rental growth for houses is now rising faster than unit rents, up 1.7 per cent and 1.3 per cent respectively over the quarter.  

“Since peaking at 4.3 per cent over the three months to April, the pace of quarterly rental growth across Australia's unit sector has plummeted by more than two-thirds, taking the gap between the median house and median unit rents from $33 in May to $36 in September,” Ezzy said.

“Worsening affordability in the unit sector, coupled with a potential shift towards larger rental households, has likely helped rebalance demand between the two property types.

“Much of the unit sector's relative affordability has been eroded through the recent rental surge, with unit rents rising 11.7 per cent during the past 12 months compared to the 7.1 per cent rise in house rents.”

Diversity in rental conditions across capitals

While headline figures showed a general easing in rental appreciation, across the individual capitals, growth conditions were more diverse.

Darwin recorded the strongest quarterly rise in home rents (3.3 per cent), followed by Brisbane (2.5 per cent), with both markets recording an increase in the pace of growth over the quarter.

In contrast, Perth (2.5 per cent), Melbourne (2.3 per cent), Sydney (1.7 per cent), and Adelaide (1.7 per cent) all saw the pace of rental growth ease, while rents across Hobart (-2.7 per cent) and Canberra (-0.9 per cent) declined. 

Sydney maintained its position as the most expensive capital city rental market, with median dwelling rent at $726 per week, followed by Canberra ($649pw) and Darwin ($615pw). Adelaide ($548pw) lost the most affordable rental capital title to Hobart ($529pw), with Adelaide recording a quarterly rental rise equivalent to $9pw while Hobart rents fell $15 per week.

Yields contract as value growth outpaces rents

With the quarterly trend in national values (2.2 per cent) once again outpacing quarterly growth in national rents (1.6 per cent), national gross rental yields recorded a mild decline over the quarter, falling three basis points to 3.69 per cent in August before rising two basis point to 3.71 per cent in September.

While down two basis points from the recent peak recorded in April (3.73 per cent), national gross yields remain 20 basis points above those recorded this time last year (3.51 per cent) and 55 basis points above the recent low record in January 2022 (3.16 per cent).