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A downward trend was recorded across the state’s regional and metro markets.
New data from Victoria’s Department of Families, Fairness and Housing reveals a sharp contraction in the state’s rental market, with active rental bonds dropping by 21,712 in the year to June 2024. This marks the first decline in recorded history since 1999, representing a significant shift in market dynamics.
Melbourne accounted for the majority of reduction in active rental bonds, experiencing a 3.7 per cent year-on-year drop with roughly 2,000 active bonds, compared to a 1.1 per cent decline in regional areas with just over 1,000 active bonds. The hardest hit local government areas (LGAs) include Nillumbik, Port Phillip, Manningham, and Monash. The sole exception was Melton, a rapidly growing development hub in Melbourne’s outskirts, where active bonds increased off the back of significant supply growth.
Eleanor Creagh, senior economist at PropTrack, attributed much of the contraction to Victoria’s rising property taxes, stricter rental standards, and sustained high interest rates, which has made rental property ownership less attractive and more expensive for landlords.
Budgetary changes announced by the Victorian government in 2023 further increased taxes on investment properties, prompting many landlords to exit the market and sell to first home buyers or other owners not participating in the rental market, according to Creagh.
“The state currently has the highest property taxes in Australia and landlords have struggled to keep up with significantly increased costs from minimum rental property standards legislation,” she noted.
While around 50,000 new loans were made to investors during the year to June 2024, PropTrack noted that the influx was insufficient to offset the exodus, leading to a net loss of rental properties. The data also indicated that the churn rate for sales by investors was significantly higher than a typical year, further intensifying the decline.
Over the 12 months to June 2024, nearly 50,000 new investor loans were issued in Victoria. Despite this, the state saw 21,712 fewer rental properties, suggesting that as many as 70,000 investors may have sold their properties during this period. Some of these sales likely involved properties without rental bonds, those intended for non-rental use, or those left vacant. In a typical year, active bonds rise by roughly 20,000, with approximately 50,000 new investor loans and around 30,000 sales, highlighting the unusually high churn rate this year.
Simultaneously, the number of new rental lettings in Melbourne fell 7 per cent to 41,734 year-on-year, with outer-east suburbs experiencing the sharpest decline with -17.8 per cent. This downtick has pushed rents higher, with annual price growth nearing 20 per cent in some areas.
Although the pace of increases has recently slowed over the September quarter due to affordability ceilings, rental pressures remain acute in every metro LGA area of Melbourne, pushing tenants into shared housing or back to living with family.
High rental costs and low vacancy have made it more appealing for renters to secure their own homes. The surge in investor sales has provided opportunities for first home buyers, with Victoria accounting for 32 per cent of all new loans to first-time buyers in Australia.
Nearly 35,000 new loans were issued to first home buyers in the year to June 2024, accounting for around half of the potential 70,000 investor sales. While this may have reduced rental demand and supply simultaneously, it remains unclear whether these buyers were predominantly renters or individuals living with families.
Victoria remains one of the most affordable rental markets among Australian capital cities –second only to Hobart – but with population growth forecast to outpace all other states, the rental stock shortage could pose long-term challenges.
Rising construction costs and slower completion rates threaten new housing projects, particularly multidensity developments reliant on pre-sales. This contraction risks worsening affordability for renters and buyers, with likely long-term economic impacts unless investment conditions improve.
Victoria’s Department of Families, Fairness and Housing emphasised the need for policy intervention to reverse the trend, ensuring the state can meet future housing demands and mitigate the affordability crisis.
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