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Rental market eases slightly as vacancy rates lift from record lows

In CoreLogic's Housing Chart Pack, the November ‘Chart of the Month’ looks at vacancy rates compared with the pre-COVID five-year average across Australia's capital cities and regional markets.

With rental values rising just 0.2% in October, national vacancy rates have increased to 1.8%, up 40 basis points from the series trough of 1.4% recorded this time last year.

CoreLogic Australia Economist Kaytlin Ezzy noted although rates are rising, they remain 1.5 percentage points below the pre-COVID five-year average. While low this is an improvement from last year, signalling a loosening rental market amid affordability constrains and easing demand.

"Rental growth has eased significantly from the height of the rental crisis. At the national level, annual rental growth peaked at 9.6% two years ago and has since eased to 5.8%."

Ms Ezzy says there are several factors that have influenced this slowdown in rental growth.

"On the demand side, we have moved past the peak in net overseas migration in the March quarter of last year, which typically feeds directly into additional rental demand.

"Additionally, household formation has recently shifted, reversing the COVID trend of smaller households.

"Over the pandemic, the average household size shrunk from approximately 2.6 to 2.5, adding demand for around 120,000 homes nationally. More recently, this trend has reversed, with more renters forming larger households or share houses to help alleviate rental costs, easing the upward pressure on rents.

"On the supply side, we've also seen the value of new investor financing trend higher through much of 2023 and 2024.

"The value of monthly investor commitments rose 29.5% over the year to September, with investors changing capital gains.

"In September, investors made up 38.3% of all new financing, well above the 33.8% decade-average, suggesting this uptick has likely helped alleviate some supply-side measures by delivering additional rental stock."

Ms Ezzy said these combined factors have worked to helped to lift vacancy rates from historic lows.

Looking across the capitals, vacancy rate rises were recorded across all cities, except for Hobart compared to this time last year.

Rates in both Brisbane (2.1%) and Adelaide (1.1%) have risen by 60 basis points over the year, while Melbourne (1.5%), Sydney (2.2%), Perth (1.2%) and Canberra (2.4%) are all up compared to 12 months ago. Despite recent increases, Perth's current vacancy rate of 1.2% remains -4.6 percentage points below the pre-covid average of 5.8%, suggesting ongoing rental shortages across the city. This aligns with Perth recording some of the strongest rent increases across the country, with rental values up 9.6% over the past year."

"At the other end of the scale is Canberra, where rental growth has been much more subdued throughout the cycle.

"While rental caps have helped keep a lid on rent growth, the stronger flow of medium and high-density development over the past five years has helped Canberra’s vacancy rates remain at or above historic averages."

Looking forward, Ms Ezzy anticipates we'll likely see vacancy rates continue to lift as affordability pressures put further downward pressure on rental growth.

Highlights from the November 2024 Housing Chart Pack include:

• CoreLogic estimates the combined value of residential real estate rose to $11.1 trillion at the end of October.
• National home values held at 0.9% over the October quarter, in line with the revised Q3 change (0.9%).
• Home value growth continues to be skewed to the more affordable end of the market with the most affordable 25% of Adelaide (5.5%), Perth (5.5%) and Brisbane (3.9%) rising the fastest. Meanwhile, home values in Darwin's (-2.1%), Melbourne's (-1.2%), Sydney's (-0.9%) upper quartile market has seen some of the largest declines over the quarter.
• CoreLogic estimates there were 43,232 sales in October, taking the annual count to 522,401 occurred in the 12 months to October, down from 524,999 in the year to September.
• Days on market has increased to 33 days in the three months to October, up from 27 days this time last year. Most capitals are now recording longer days on market compared to this time last year, with rising advertised stock levels providing more choice and less urgency for buyers.
• Vendors are now offering slightly lower discounts on their properties compared to last year, with the median level vendor discounting rate coming in at-3.6% nationally over the October quarter.
• New listings totalled 45,155, 1.3% higher than the same time last year and 0.8% above the historic five-year average.
• Total listings have continued to trend higher over spring, with the recent flow of new stock taking total listings to 155,875 in the four weeks to 3 November 2024. Although inventory levels are more diverse across the capitals.
• Rental growth continued to slow nationally at 5.8% annually, the slowest annual change since April 2021.
• The November ‘Chart of the Month’ looks at vacancy rates compared with the pre-COVID five-year average across the country. Despite rental values rising just 0.2% in October, the national vacancy rate came in at 1.8%, -1.5 percentage points below the pre-covid five-year average.

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