Renting in Australian Capital Cities Set to Become Harder in 2023

Renting in Australia’s capital cities is predicted to become increasingly challenging in 2023 due to rising demand and insufficient supply, leading to higher prices, according to experts.

Enquiries per Rental Listing Increase, while Number of Rental Listings Decrease

Recent data from PropTrack reveals that demand for rentals in the capital cities has significantly intensified, with enquiries per listing increasing by 31.1%. However, the supply of available rental properties remains historically low, with a decrease of 26.3% in rental listings compared to the previous year. This shortage of supply has particularly affected Sydney and Melbourne, which have seen the largest decline in available properties for rent and the highest increase in enquiries per listing.

The Impact on Renters

Brendan James, a 32-year-old musician, has personally experienced the consequences of the tightening rental market. He was informed that his rent would increase by over 22% at the end of his lease agreement. Consequently, his two-bedroom unit in Kedron, Brisbane, will see its rent rise from $440 to $540 per week. While Brendan can afford the increase, he has decided to move out on principle, as he believes the rent hike is unreasonable for the size and quality of the property. Brendan’s situation reflects the frustrations faced by many renters who are struggling to find affordable accommodation in the current market.

Rental Market Tightening in Capital Cities

PropTrack’s rental report highlights the intensification of rental demand in Australia’s capital cities, with a 31.1% increase in enquiries per listing. However, the supply of available rental properties has reached its lowest point since February 2003, with a year-on-year decrease of 26.3% in combined capital city rental listings. Sydney and Melbourne have experienced the most significant decline in available properties for rent, along with the highest increase in enquiries per listing.

Economic researcher Cameron Kusher explains that the shortage of supply is due to a combination of people returning to the Sydney and Melbourne markets after leaving during the pandemic, as well as the influx of overseas migrants into these cities. Despite the high demand, rental prices in Sydney and Melbourne have remained relatively stable since the start of the pandemic.

Regional Australia Shows Different Trends

In contrast to the capital cities, regional areas in Australia have seen a decline in rental demand and a decrease of one-third in enquiries per listing. Total rental listings in regional areas have increased by 9.8% year-on-year, marking the largest annual increase since June 2014. However, rental prices have been on the rise across the country, regardless of location. In December, rental prices in capital cities increased by 10%, compared to a 7.1% increase in regional areas.

The Need for More Property Investment

According to the PropTrack report, the most effective way to alleviate rental pressures in the short term is to encourage more investment in housing. Shaun Bond, an economist from the University of Queensland, suggests that corporate investors could play a crucial role in addressing the current rental market pressure through the “build-to-rent” market. This involves large investors constructing apartment buildings specifically for rental purposes, which would quickly increase the supply of rental properties. Institutional investors have the necessary capital and stability for such ventures.

Cameron Kusher emphasizes the need for more property investors to purchase existing residential properties and make them available for rent. He explains that lending to property investors has been below its long-term average since early 2017, partly due to higher interest rates charged by banks, credit growth limits, and increased land tax on investments imposed by state governments. To increase long-term supply, Kusher suggests building more homes specifically for rental purposes.

Factors Contributing to the Current Situation

Professor Bond attributes the increase in rental prices to rising house prices, as many landlords take advantage of the market to sell their investment properties. This reduces the number of properties available for rent. Additionally, strong interstate migration, particularly to Queensland, has led to properties being purchased for personal use rather than rental purposes. Furthermore, the construction industry is struggling to keep up with the demand for new homes and apartments due to supply chain issues and financial difficulties faced by construction firms.

Future Outlook

Looking ahead to 2023, Cameron Kusher predicts an ongoing slowdown and an easing of rental market conditions in regional areas. However, he believes that major capital cities such as Sydney, Melbourne, Brisbane, Adelaide, and Perth will experience even tighter rental conditions as more people return to these cities and rental demand continues to increase. This trend may extend into 2024.

In conclusion, renting in Australian capital cities is expected to become increasingly difficult in 2023 due to high demand and limited supply. The shortage of rental properties has led to rising prices and frustration among renters. Encouraging more investment in housing, particularly through corporate investors, and increasing the supply of rental properties through property investment and construction are seen as potential solutions to alleviate the rental market pressures. However, these measures may take time to implement, and the rental market is likely to remain challenging in the near future.