Crisis conditions have gripped the nation's rental markets in recent years, and affordable rentals are few and far between.
Advertised rental prices are up 43% on pre-pandemic levels for houses nationally, while unit rents have risen 46% over the same period.
But there’s some markets where median weekly rents have surged by close to 80% since March 2020, with the strongest growth in Queensland and WA across both the capital cities and regions.
The significant increase in rents since the pandemic onset means the share of properties listed for rent for less than $400/week has hit a new record low of just 10.4% nationally, and in the capital cities only 5.9% of rentals now cost less than $400 a week.
A persistent shortage of available rentals has meant strong demand to rent, bolstered by record net migration, has pushed rental vacancy rates to historic lows.
Since late 2021, rental market conditions have tightened considerably in city markets that were hit hardest by the pandemic, spurred by smaller households, cities springing back to life and the surge in net migration and student arrivals.
Vacancy rates have eased slightly in the past couple of months but remain close to record lows and less than half the level considered a healthy rate of vacancy, with low vacancy driving rents higher and creating challenging conditions for renters.
Rental listings under $400/week have plummeted in every market for both houses and units.
At the start of the pandemic, one in five houses for rent in Sydney cost less than $400 a week – that figure is now one in 50. In Melbourne, one in 25 house rentals now cost less than $400.
These forces are placing immense pressure on most renters, but particularly lower income households, with cheaper rentals in ever shorter supply.
For households earning in the bottom 20% of the income distribution, about 1 in 100 rentals advertised nationwide in April 2024 were affordable (based on that household spending 25% of their pre-tax income on rent).
Meanwhile, a household in the bottom 30% would have found about 1 in 30 rentals advertised (~3%) in April 2024 were affordable. To be able to afford even one-in-three advertised rentals (~30%), this household would need to spend more than 40% of their income on rent.
This affirms the requirement of rental support for low-income renters as well as highlighting the critical need for an increase in the supply of housing.
These data clearly show low-income households looking for a rental now will likely have to spend a significant share of their income on rent, increasing financial stress.
Importantly, higher-income earners can make tradeoffs to seek out more affordable rentals, though this means lower-income renters face tougher competition for cheaper properties and markets.
This dynamic has likely contributed to further diminishing the share of rentals that cost less than $400 a week.
Given the broad-based surge in rents since the pandemic onset, it's no surprise the share of rentals priced at less than $400 a week has shrunk.
But recent strong rental price growth in cheaper outer capital city regions has meant the share of affordable rentals declined even further over the past year, placing continued downward pressure on the share of rentals listed for less than $400 a week.
Challenging market conditions have compelled 72% of renters to make compromises when searching for rental properties.
Notably, at present the regions facing the most acute crisis conditions tend to be situated further from city centres, with tough conditions in inner city markets spilling out into the outer capital city regions.
Its likely cost-of-living pressures have forced these tradeoffs, with many seeking cheaper options in peripheral regions, driving stronger rent growth in many more affordable capital city regions.
In the year ending September 2023, Australia's population grew by 659,800 people, with net overseas migration of 548,800 people drove more than 80% of that growth.
Based on an average household size of 2.5 people, that’s more than 260,000 household additions adding to already strong demand for housing.
Meanwhile industry challenges mean the delivery of new homes slowing, with 170,000 new homes completed in the same period.
Demand for rentals remains elevated and supply low leading to higher rents.
These pressures are likely to cause more renters to make tradeoffs, while also fuelling strong demand for share housing.
However, the good news is that we expect the pace at which rents keep growing will ease.
Net overseas migration is expected to move lower in the year ahead, which is likely to ease rental demand.
However, increasing the available pool of long-term rentals is the only sustainable long-term fix, though this takes time.
Given these crisis conditions in the rental market, with rental vacancies close to record lows in most markets, it’s clear we need more affordable and available rentals, particularly for lower income households for whom almost no rentals are affordable.
Low-income renters and those on benefits cannot compete when available properties are severely limited, increasing the risk of homelessness among these groups and highlighting the critical need for increased supply of social housing and public housing initiatives.
There are other strategies that can help alleviate rental market challenges such as supporting first-home buyers into home ownership, better utilising millions of spare rooms, or encouraging those with homes that are too large for their needs to downsize.
But longer term, sustainably improving rental affordability will require improving availability and increasing the provision of affordable housing.
