Demand pressures have compounded the pace of rental growth in Australia, as rents reaccelerated and vacancy rates tightened to a near record low of 1.1% in the first three months of 2023.
CoreLogic’s Quarterly Rental Review for Q1 2023 shows after easing through the second half of 2022, the country’s quarterly rental growth trend reaccelerated through the March quarter, with the national rental index rising 2.5%, up from 2.0% in the December quarter.
CoreLogic Economist and report author Kaytlin Ezzy said while the annual growth trend is holding steady, it remains stubbornly high at 10.1% for the year to March, equating to an extra $52 per week or additional $2,727 a year.
“The reacceleration of Australia’s rental market won’t be welcome news for those tenants already struggling to find affordable accommodation in our capital cities,” Ms Ezzy said.
“There’s already a chronic undersupply of advertised rental stock in many parts of the country that’s translated into record low vacancy rates across most capitals. Such a low number of available rentals is a key factor that pushed rental values higher again last quarter.”
Vacancy rates hit new low
Over the four weeks to April 2, the total count of national rental listings fell to just under 95,000; -17.3% below the levels recorded over the same period in 2022 and -36.3% below the previous five-year average.
Ms Ezzy said combined with the strongest overseas migration rate since the onset of COVID, the shortage in rental listings has seen the national vacancy rate tighten once again to a new record low of 1.0% in February before nudging slightly higher to 1.1% in March, down from 1.3% in December. The vacancy rate across the combined capitals fell to a new record low of 0.9% in March, while the vacancy rate across regional Australia rose to 1.4%.
Unit rental growth outpaces house rents
“The uptick in rental growth can be attributed to surging rents in the unit market, particularly across the largest capitals, with increased demand from overseas migration occurring amid a shortage of rental supply pushing rents higher,” she said.
At a national level, unit rents rose 3.9% over the quarter, up from 2.8% in the December quarter. National house rents recorded a smaller increase, from 1.7% to 2.0%, with affordability pressures likely pushing more renters towards the medium to high-density sector.
“Rental growth conditions across the capitals were likewise skewed towards the medium to high-density sector, with each city recording a larger quarterly and annual increase in unit rents compared to houses.”
Capital city rents outpace regional centres
Rental growth across the combined capitals outpaced the combined regional markets, continuing the trend seen since June 2022. Over the three months to March, combined capital city rents (3.0%) rose at more than twice the pace of the combined regionals (1.2%).
“While the return of overseas migration has contributed to the capital city rental trend reacceleration, stronger growth through the earlier stages of COVID has seen regional rents rise by 28.2% since the onset of COVID in March 2020, while capital city rents have risen by 23.0%,” Ms Ezzy said.
The largest quarterly rental increases were recorded in Melbourne (3.7%), Perth (3.6%), Sydney (3.4%), Hobart (1.8%) and Adelaide (1.7%). Brisbane recorded an easing in rental growth, from 2.2% in December to 1.8% in March, while Darwin (-1.0%) and Canberra (-0.7%) saw rents fall over the quarter.
Migrants push Melbourne rents higher
Despite recording the largest quarterly rental increase, Melbourne remained the country's most affordable capital, with a median rental value of $526 per week.
“Weaker rental demand due to extended lockdowns and closed international borders saw Melbourne's relative rental affordability improve through the first two years of COVID,” Ms Ezzy said.
“However, since overseas migrants and international students had returned and they typically choose to rent in Melbourne or Sydney, the pendulum had swung the other way. This trend has seen the gap between Melbourne and the second most affordable rental capital, Adelaide ($531), narrow from $15 per week in December to just $5 per week in March,” she said.
Sydney reclaims most expensive title
Sydney ($699 p/w) overtook Canberra ($674 p/w) as the most expensive capital to rent in over the March quarter, with Canberra recording a -0.7% decline in rents over the three months to March.
Sydney's quarterly rental trend gained momentum, from 2.8% over the December quarter to 3.4% in March, the highest quarterly rise since the three months to April 2010 and its highest annual increase (12.6%) since CoreLogic records began in 2006.
Perth has strongest annual figures
Perth recorded the strongest annual increase in rents across the capitals, up 12.8% over the 12 months to March, equivalent to $65 per week, followed by Sydney (12.6%) and Brisbane (12.3%). Canberra recorded the smallest annual rent increase, up just 0.3%, while Darwin and Hobart recorded annual increases of 4.6% and 4.7% respectively.
Regional rental markets all increase
Each of the broad rest-of-state regions saw rents rise over the quarter, although the rate of increase varied. Regional SA recorded the largest rent rise over the three months to March, up 2.3%, followed by regional WA (2.2%), regional QLD (1.4%) and regional Victoria (1.2%). Regional Tasmania recorded the smallest increase, up just 0.1%, while regional NSW and regional NT rents rose 0.7% and 0.9% respectively.
Gross rental yields expand further
National gross rental yields rose 10 basis points over the March quarter to 3.88%. With the exception of regional NT, each capital and rest-of-state region recorded both a quarterly and annual rise in gross rental yields.
While still positive the pace of yield recovery has slowed from the 24-basis point lift recorded over the three months to September 2022.
“After reaching a record low in February 2022 (3.21%), the yield recovery period to date has been fueled by both falling values and rising rents. However, with the CoreLogic national Home Value Index recording a rise in dwelling values over March (0.6%), the upwards trend in yields will likely continue to ease,” Ms Ezzy said.
Further rental pressure expected
Given the imbalance between supply and demand, Ms Ezzy warned it is unlikely there will be much relief for renters over the short to medium term with stock levels unlikely to increase substantially anytime soon and little financial incentive for investors to enter the market.
“While gross yields have expanded over the year, it’s likely net yields have declined. Weekly rents rose by approximately $48 per week between April 2022 and March 2023, however the average weekly investor mortgage repayment on the typical Australian dwelling increased by $184, leaving investors $136 per week worse off,” she said.
“Additionally, net migration is forecast to remain strong for some time yet and this will only add further upwards pressure on rental values.
“Tenants coming up against affordability constraints have limited opportunities and unlike home owners can’t borrow to pay rent. It’s likely some tenants are now sacrificing the spare room or home office and re-forming share houses that disbanded throughout COVID in order to share the rental burden.
“Those who have the financial means to pull together a deposit might be taking the plunge into homeownership sooner while others are locking in longer leases, rather than brave the hunt for a new rental.”
Download the latest Quarterly Rental Review
CoreLogic Australia