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National vacancy rates hit record low as affordability starts to impact rent hikes

Updated: Oct 12, 2022

As Australia’s rental market continues to tighten to record levels, the pace of rental growth has started to ease, suggesting affordability constraints are having an impact.

CoreLogic’s Quarterly Rental Review for Q3 2022, released today, shows the national rental index had its smallest monthly increase this year, up 0.6% in the month to September and 2.3% over the September quarter, a 60 basis point decrease on the three months to June (2.9%).

The quarterly trend in national rental values is now 70 basis points below the recent peak rate recorded in May (3.0%).

CoreLogic Research Analyst and report author Kaytlin Ezzy said despite the slowdown in the monthly and quarterly rate of growth, the annual growth trend in national rents held steady at record high 10% in August and September.

“The past few years has seen unprecedented growth in rental values,” she said.

“We saw rents fall marginally over the first few months of COVID, but, since August 2020, national dwelling rents have surged almost 20%, equivalent to a weekly rent rise of approximately $90 per week.

“Initially driven by a reduction in the average household size, the continued upswing in values is likely now predominantly being driven by the strong return of overseas migration, coupled with extremely tight rental supply.”

Ms Ezzy said the easing in rental growth was a little surprising, particularly given such low vacancy rates.

“The slow down in the rate of rental growth may suggest an increasing number of prospective tenants are starting to come up against affordability constraints,” she said.

“As high non-discretionary inflation, along with increasing rents put additional stress on a renter’s balance sheet, it is likely a growing number of tenants look to reform larger households or find more affordable rental options in an attempt to reduce costs.”

Record low vacancy rates

Supply continues to be an important factor impacting rental markets with the total supply of advertised rental stock -35.4% below the previous five-year average.

National dwelling vacancy rates tightened from 1.3% in June to 1.1% in September, the lowest national vacancy rate on record.

“One factor which has likely negatively impacted rental supply is the decline in investor purchasing activity between early 2017 and early 2020,” Ms Ezzy said.

“Through this period, a mix of temporary changes to mortgage lending conditions, and the uncertainty surrounding the onset of COVID-19 limited residential property purchases. Additionally, CoreLogic recorded an increase in investor-owned housing stock being listed for sale through 2021 and into 2022, with many investors possibly looking to maximise capital gains through the upswing.”

Capital cities vs regional rents

Rental growth across the combined capitals continues to outpace rent rises across the combined regionals.

Ms Ezzy said this trend was largely owing to the return of overseas migrants, who typically choose to rent in high-density markets of Sydney and Melbourne upon arrival.

Rental growth in the combined capitals was up 2.7% and 1.3% across the regions, over the three months to September.

“While both markets saw the pace of quarterly growth ease compared to the June quarter, the decline in the rate of growth seen across the combined regional markets was significantly stronger,” she said.

“However, despite the easing growth trend, rental availability in both markets remains extremely tight, with the capitals recording a monthly vacancy rate of 1.1%, while just 1.0% of regional rental properties were observed as vacant in September.”

Capital best and worst performers

Brisbane recorded the strongest quarterly rise in dwelling rents (3.8%) of any capital city, despite the pace of growth easing from the recent peak rate of growth (4.2%) recorded over the three months to August.

Adelaide and Darwin both recorded an increase in rental values of 3.6% over the quarter, while

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