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Two-speed demand splits rental market

A two-tiered rental market is appearing, with demand for rentals in capital cities soaring while in regional areas it is falling dramatically.

According to PropTrack’s March Rental Report, demand for rentals is falling on a national level, with the number of enquiries per listing on down 4.2 per cent compared to the same time last year.

The capital city markets remain tight with enquiries up 8.3 per cent compared to last year, however, across regional Australia the number of enquiries has plummeted 41.7 per cent.

Total rental listings in the capital cities were still sitting at historic lows in March, falling 18.3 per cent in the past 12 months.

In regional areas total rental listings were up 22.5 per cent year-on-year to sit at their highest level since July 2020 – the largest annual increase since December 2010.

PropTrack Director of Economic Research and report author, Cameron Kusher, said the national rental market was extremely tight over the first quarter of 2023. 

“Rental vacancy rates were edging lower due to exceptionally strong demand for rental properties and an ongoing shortage of supply,” Mr Kusher said.

“As a result of these conditions, properties were leasing quickly, and landlords were afforded scope to increase rents. 

“The challenges for renters are being exacerbated by the fact that higher interest rates have reduced borrowing capacities. 

“This is making it harder for renters to transition into first-home buyers and more difficult for investors to purchase properties, restricting rental supply.”

Source: PropTrack Rental Report March 2023

According to the report, nationally, new rental listings were slightly higher than last year, up 2.2 per cent in March. 

This was the first increase since December 2020, though new listings remain historically low. 

With limited new stock, the total supply of properties for rent has tightened with total listings down 9.8 per cent compared to last year – near historic low levels.

Mr Kusher said the surge in immigration is putting a huge strain on rental markets.

“The rapid rebound in migration to Australia is also increasing competition for rental properties,” he said.

“Most of the people arriving in Australia don’t own a property in the country and will be seeking somewhere to rent, adding to rental supply shortages. 

“These rental pressures are being felt acutely in Sydney, Melbourne and Perth, while regional markets are seeing demand soften as pandemic-induced trends subside.” 

He said fewer people are leaving capital cities for regional areas, some are returning to the capital cities and those who are staying regionally are likely now purchasing. 

“These trends are expected to continue, leading to a further easing of regional rental pressures,” Mr Kusher said.

Outside of Hobart, rental vacancy rates were either unchanged or lower across all capital cities over the past three months, with Sydney and Melbourne at record lows.

Most regional markets have experienced an increase in rental vacancy rates over the past quarter, with regional Queensland and regional WA, the exceptions.

The lowest rental vacancy rates in March 2023 were in Adelaide (0.9 per cent), Perth (0.9 per cent) and regional SA (1 per cent), while the highest vacancy rates were in regional NT (2.7 per cent), Canberra (2 per cent) and Darwin (1.9 per cent).

Tight conditions are putting upward pressure on rents, with the report finding that over the year, rents were up 11.1 per cent nationally to sit at $500 per week.

With capital city rents up 13 per cent year-on-year to $520 per week.

Mr Kusher said for the crisis to ease, investors need to return.

“Investors continue to exit the market and few new investors are entering,” he said.

“Although there is a lot of housing supply under construction, most has been targeted toward the owner-occupier market rather than investors. 

“Absent a return of investors to the market or a big increase in first home buyer numbers, it seems unlikely that the strong demand and insufficient rental supply will be rectified any time soon. 

“This means the cost of renting is expected to continue rising – particularly in capital cities.”

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Rowan Crosby

Rowan Crosby is a senior journalist at Elite Agent specialising in finance and real estate.