The national rental market has remained challenging for renters over the first quarter of 2024.
Over recent years, the market has regularly been characterised by persistent strong demand and low supply which is affording landlords the ability to increase rents. We expect these conditions to persist in 2024.
Over the first quarter of this year, median advertised rents across Australia increased by 3.4% to reach $600 per week. While this quarterly increase was unquestionably strong, it was a much slower rate of growth compared to the 5.8% rise over the corresponding quarter last year.
Over the 12 months to March 2024, advertised rents increased by 9.1% with the annual change below 10% for the first time in two years and down from the highest annual growth of 19.6% in March 2023. Although the rate of rental growth has slowed, advertised rents have still risen by $50 per week over the past year.
Annual rental growth has remained much stronger in capital cities than regional markets, and growth is relatively stronger in the major capital cities than it is in the smaller ones.
Rents are increasing rapidly, encouraging more people to become first home buyers, however only a certain cohort of renters can make this transition. Over the year to February 2024, the value of lending to owner-occupier first home buyers increased by 20.7%, its largest annual rise since July 2021.
Encouragingly, more investors are also starting to return to the market, with the value of new lending to investors 21.5% higher over the year to February 2024. Of course, we are still seeing a heightened volume of investors exiting the market, keeping overall rental stock low.
Australia’s population is growing at a rapid pace, creating more competition for rental stock and exacerbating shortages. Over the 12 months to September 2023, the national population increased by a record 659,795 people. Of this increase, 548,770 were from net overseas migration of which most are unlikely to own their own property and therefore rely on rental accommodation.
The sustained growth in advertised rents is indicative of excess demand for rental properties and insufficient supply, illuminating the desperate need for more rental properties and housing overall. Under the Federal Government’s Housing Accord, the goal is to build 1.2 million new, well-located properties over the five financial years to June 2029. With dwelling approvals and commencements at decade-lows, interest rates at decade-highs and construction insolvencies elevated along with material and labour costs, this goal seems increasingly unachievable.
There are other strategies to alleviate rental market challenges such as supporting first home buyers into home ownership or encouraging those with homes that are too large for their needs to downsize into more appropriate accommodation.
Any significant imminent relief to the rental market challenges seems unlikely, with demand expected to remain elevated and supply to remain low leading to higher rents. However, we are expecting the slowing trend in rental growth to continue.
The national median rent of properties advertised on realestate.com.au reached $600 per week at the end of the March 2024 quarter, rising by 3.4% over the quarter and by 9.1% from a year prior. Advertised rents increased by $20 per week over the quarter and by $50 per week over the year.
The 3.4% quarterly increase in rents was stronger than the 1.8% increase over the December 2023 quarter, however was much slower than the 5.8% increase over the March quarter last year. The 9.1% increase in advertised rents over the year to March 2024 was the first-time rental growth was below 10% since March 2022 and was well below the 19.6% annual increase, which also was the peak rate of growth in March 2023.
The gap between median advertised rents for houses and units has narrowed over the quarter to just $10 per week, with house rents $600 per week and unit rents $590 per week. This is due to house rents increasing 0.8% over the quarter and 9.1% over the past year, while unit rents have increased by a larger 5.4% over the quarter and 13.5% over the year.
The gap between capital city and regional rents has widened over the quarter. Combined capital city median rents were $625 per week in March 2024, rising 4.2% over the quarter and 13.6% over the year. Combined regional market median rents were $520 per week in March 2024, increasing 4% over the quarter and 6.1% over the past year.
Although rental growth continues, quarterly and annual rates of rental increases are lower than over the same period last year. This likely reflects the trade-offs that renters are having to make due to the heightened cost of rent and cost of living. Some of these trade-offs may include renting smaller properties, renting in less desirable locations or sharing rental accommodation with other tenants.
Population growth is up but expected to slow from the current levels. Alongside this, increased lending activity to first home buyers and investors will see renters exiting the rental market while more people are purchasing rental properties, likely alleviating some rental pressures. As a result, we expect the rate of rental growth to continue to slow, however remain above the pace of inflation in most regions and major capital cities.
With rental growth outpacing home price growth across the country over the past year, gross rental yields have increased.
In March 2024, gross rental yields reached 4.4%, up from 4% in March 2023, achieving the highest gross rental yields since August 2020.
Each capital city and most regional markets across the country have recorded an increase in gross rental yields over the past year.
Across the combined capital cities, gross rental yields were recorded at 4.3% in March 2024, increasing from 3.9% a year prior. Combined regional market gross rental yields were at 4.5% in March 2023 and rose to 4.6% by March 2024.
Gross rental yields for houses increased from 3.6% to 3.9% year-on-year to reach their highest level since September 2021. Over the same period, unit rental yields increased from 4.4% to 4.9% and are now at their highest since February 2015.
Gross rental yields for units in Melbourne (5%) and Darwin (7.2%) are now the highest they have been at any time over the past decade.
While we expect rental growth to slow moderately this year, we also expect it to remain stronger than property price growth, therefore we anticipate gross rental yields will shift higher over the remainder of 2024.
In March 2024, the number of newly advertised properties for rent was 13.7% lower than a year earlier and new rental listings were the lowest they’ve been for the month of March since 2010. New rental listings in the combined capital cities and combined regional markets were each 13.7% lower in March 2024 compared to a year earlier. Compared to the March decade average to 2022, capital city new rental listings were 23.2% lower and combined regional market new rental listings were 26.1% lower.
The scarcity of new rental listings reflects the challenge that renters are facing, with a significant shortage of properties becoming available for rent and heightened number of people seeking rentals. Notably, Canberra was the only market to experience an increase in new rental listings in March 2024 compared to the average over the decade to 2022, contrasting other capital cities seeing declines of more than 20%.
While we are seeing more lending activity to investors and first home buyers, population growth remains heightened as does investor selling, and housing construction remains at extremely low levels.
As a result, the number of new rental listings coming to market is anticipated to remain low while demand for rental accommodation remains elevated.
With a low volume of newly advertised rental properties coming to market, total rental listings were also extremely low in March 2024 – down 11.3% from March 2023, with the fewest total rental listings for the month of March since 2010.
The combined capital cities have seen a 10.7% reduction in total rental listings over the year to March 2024, sitting 34.2% lower than the March average over the decade to 2022. Regional markets have seen a larger annual decline in total rental listings of 12.7% and relative to the March decade, average total listings are 38.5% lower.
With few new listings coming to market and strong demand seeing most rental properties lease quickly, meaningful improvement in total rental listings over the short-term seems unlikely. An increase in the supply of stock available for rent will be critical in slowing the rate of rental increases.
Properties advertised for rent on realestate.com.au are leasing quickly, with the median days on site in March 2024 recorded at 18 days. This was unchanged from March 2023 however was lower than the March average of 23 days over the five years to 2022.
Rental days on site across the major capital cities was extremely low, at or below 18 days in March 2024. Rental properties averaged 17 days on site in Sydney in March 2024, the lowest days on site average monthly figure since the beginning of 2017.
With properties leasing rapidly due to the high demand and low supply of rental stock, property managers are reporting properties leasing much quicker than figures show, effectively being leased after their first open for inspection.
It seems unlikely that there will be any significant growth in rental days on site over the coming months considering the number of rental properties available is at historic lows. Hobart and Canberra could be the exception, with relatively more stock available for rent.
The national rental vacancy rate was recorded at 1.1% in March 2024, down from 1.2% in the previous quarter and lower than the 1.3% from March 2023.
Houses continued to record a much lower rental vacancy rate (0.9%) than units (1.6%) in March 2024. House vacancy rates were down over the quarter and year, from 1% in December and March 2023. Unit vacancy rates also decreased from 1.9% in December 2023 and from 1.8% in March 2023.
Rental vacancy rates in March 2024 were similar across the combined capital cities (1.1%) and combined regional markets (1.2%) with the lower vacancy rate alternating regularly month-to-month. Capital city vacancy rates fell from 1.3% in December 2023 and 1.2% in March 2023, while regional vacancy rates were also down from 1.2% in December 2023 and 1.4% in March 2023.
Prior to the pandemic era, the national rental vacancy rate was typically around 2.5%, indicating just how much conditions have tightened. With limited new rental supply and persistent strong demand for rentals, the vacancy rate is anticipated to remain low. This highlights again how a significant lift in rental stock or reduction in rental demand is required to see more stable rental conditions similar to pre-pandemic.
Enquiries per listing measures key actions tenants can make on a rental listing to indicate their interest in a rental property. This can include contacting an agent (via email, phone, or SMS) or other behavioural indicators, such as saving or booking inspection times.
In March 2024, there were 28.9 enquiries per rental listing on average nationally, compared to 24 enquiries in December 2023 and 29.5 enquiries in March 2023. Enquiries per listing were 1.8% lower over the year.
In the combined capital cities, there were 32.6 enquiries per listing in March 2024, 5% fewer than the previous March. Across the combined regional markets, enquiries per listing were 13.3% higher over the year, reaching 20 enquiries per listing.
With the number of properties listed for rent falling and enquiry per listing also reducing, it highlights a slightly lower level of overall demand for rental stock. Importantly, the number of enquiries per rental listing remains historically high and any easing in demand is minor.
The increase in enquiries per listing in regional markets over the year likely reflects the growing relative rental affordability in these markets, with the largest increases in regional areas of New South Wales, Queensland and Northern Territory.
Although there has been a moderate decline in enquiries per listing, and this may continue as renters rationalise their preferences or shift to share housing due to the high rental costs, we expect that rental enquiries will remain elevated due to the ongoing excess demand and limited supply.
Median advertised rental growth across the country remains elevated at 9.1% over the past year, however the rate of rental growth has slowed by more than half compared to the 19.6% annual increase in March 2023.
With the cost of renting historically high, and having increased by 42.9% over the four years since the beginning of the pandemic to March 2024, it’s reasonable to expect that rental growth may slow further over the coming months. Quite simply, with rent prices and cost of living soaring, fewer people will be able to afford heightened rents and will look for cheaper alternatives while others may be willing to pay the premium to own their own property.
While rental growth may slow from here, it seems unlikely rents will stabilise or fall. A mismatch between demand and supply of rental stock clearly remains and is unlikely to be rectified any time soon. Any further slowing will likely be due to the capacity for people to pay heightened rental costs.
Nationally, investors are still exiting the market and while there has been a rebound in new investor lending this year, it is not enough to sufficiently improve stock levels. Construction remains a challenge, with high build costs, limited labour availability and decade-high financing costs resulting in dwelling approvals and commencements sitting at their lowest level in a decade.
These conditions highlight why it is so important to build more housing. Serious consideration needs to be given to the financing of these projects and the capacity to build the volume of housing required.
From here, we expect rents will continue to climb, particularly in the major capital cities. This is due to persistent low supply and strong demand being exacerbated by rapid population growth. While population growth is forecast to slow, it will remain elevated this financial year and next.
As was the case in 2023, we expect that the rate of rental growth will slow in 2024 as the higher cost of rent and the overall rise in cost of living will limit rental increases. Renters will be increasingly looking for smaller and cheaper properties or forced into share house living to save on rental costs.
