Australia’s capital cities recorded the strongest annual growth in rents since 2007, with rising international migration tightening the already-strained supply.
CoreLogic data shows the mismatch between supply and demand drove an 11.7 per cent increase in the combined capitals annual rental market over the past year, largely underpinned by increasing demand for capital city units.
This increase in capital city rents is equivalent to an annual increase of about $63 per week or $3200 per year, CoreLogic economist Kaytlin Ezzy said.
Sydney remains Australia’s most expensive city with an average rental cost of $711 per week, while Adelaide is the most affordable at $534 per week.
Ms Ezzy said the significant rental increases seen in Sydney and Melbourne can largely be put down to the cities’ appeal to migrants, who will often opt to rent instead of buying a home when arriving in Australia.
Canberra and Darwin were the only capital cities not to record a rise in rental values in April, but that doesn’t mean renters in these cities have it easy; strong rental growth over the past five years means they’re still the second and fourth most expensive cities to rent in, respectively.
There isn’t much relief outside of the cities either; regional rents rose 6 per cent annually, which is 2.5 per cent above the previous 10-year average growth rate.
“While the capitals are starting to [see] some of the strongest numbers on record, regional rents are still up around 29 per cent since March 2020, while the capital cities have only seen rents increase by about 25 per cent since COVID,” Ms Ezzy said.
“The regional markets, even though they are cooling off a little bit, they’re still up substantially from where they were and proportionately up higher than the capitals.”
Household size increases
Grattan Institute senior associate Joey Moloney told TND Australia experienced a decline in the average household size during COVID as people looked for more space amid lockdowns and work-from-home setups.
But short supply, increased competition and rising rents have left Australians pressured to share space again, with household sizes growing since late 2022.
“The high rents at the moment are basically operating as a price signal that’s allocating people probably back towards larger households,” Mr Moloney said.
Between late 2020 and August 2022, the average household size declined from 2.55 individuals to a historical low of 2.48, Australian Bureau of Statistics and Reserve Bank of Australia data shows.
The ABS and RBA calculate that the decline in the average household size observed between early 2020 and September 2021 would imply an increase of about 120,000 households.
But since borders reopened last year, workers are being asked to return to city offices, more migrants are flowing into the country, and there’s not enough rental stock to go around.
Over the four weeks to April 30, the total supply of capital city rental listings was 20.9 per cent below the level recorded this time last year, and almost 40 per cent below the five-year average, CoreLogic data shows.
Call for government action
In the short term, the government should lift Commonwealth Rent Assistance, an income supplement available to people on payments such as JobSeeker or the aged pension, Mr Moloney said.
“A material lift in rent assistance of about 40 per cent would cost the government probably about $2 billion,” he said.
“But [that] would go right towards easing cost of living for the most vulnerable people in the private rental market.”
He said the government could also buy private rentals to sub-let them to these vulnerable groups of people.
The rise of migrants mean more landlords might be tempted to chase bigger profits by turning away from the long-term rental market in favour of the short-term rental market, facilitated by Airbnb.
Some renters looking to renew their leases have already found themselves kicked to the kerb so properties can be transformed into short-stay accommodation.
This trend isn’t the biggest driver behind the tight rental market, but it does make it harder to find a place to live in areas particularly popular with tourists, Mr Moloney said.
“We’re interested in the government exploring the idea of incentives for the owners of short-stay accommodations to transition them back onto the long-term rental market,” he said.
“Maybe a higher rate of land tax if your rental is in the short-stay rather than long-term market.”
The best long-term solution to the rental crisis is to simply build more houses, but Mr Moloney said he doesn’t see much promise in the government’s commitment to increasing supply.
From 2023 to 2033, there is expected to be a -79,300 shortfall in new dwellings in relation to demand, the National Finance and Housing Investment Corporation estimates.
“Until we have a government that really puts the money on the table for state governments to reform their land-use planning regimes to make it easier to build more houses in the places where people want to be, and in the household sizes they want to live in, the rental market that people really want isn’t going to be there,” Mr Moloney said.
