Login
iscover
Is the rental boom over? It’s getting close, according to one economic expert.
CoreLogic’s national rental index has seen a flatlining over the past two months, following on from rental growth of almost 40 per cent between August 2020 and June 2024.
According to Tim Lawless, CoreLogic Australia’s research director, “the end of the rental boom is in sight”, with demonstrably weak rental markets now in play across the country.
Annual growth has eased over the past 12 months to 7.2 per cent, which Lawless said is the lowest annual growth rate since the 12 months ending May 2021.
Much of the slowdown can be linked to the unit sector, with the annual change in unit rent growth reducing to just 6.7 per cent – down from 14 per cent growth seen in the 12 months to April 2023.
The annual pace of growth in house rents saw its peak much earlier, having seen gains of more than 10 per cent in the 12 months to September 2021, before reducing to just 7.4 per cent over the past 12 months.
So why are we now seeing a slowdown in rents?
According to Lawless, there’s a number of factors at play.
1. Affordability
While the cost of rent increased by 36.1 per cent between March 2020 and June 2024, wages only grew by 12.7 per cent over the same period.
This means a household on the median income is now dedicating 32.2 per cent of their gross annual income to pay median rent – a record high over the past 20 years, according to the latest rental affordability metrics.
2. Household formations are changing
As affordability decreases, people (and households) are having to rethink how they choose to live.
During the pandemic, the average capital city household reduced from 2.63 residents per dwelling, to just 2.53 residents per dwelling.
At the time, smaller households amplified housing demand, especially in the rental space, according to Lawless.
While he said the trend had been slow to reverse, the RBA is now showing households have once again become larger, with the average household size rebuilding. In turn, this will ease the amount of households requiring rentals.
3. Net overseas migration has peaked
Overseas migration was at a record high in the March quarter of 2023, when 165,000 people came into the country. This dropped to just 107,000 over the last quarter of the year.
With overseas arrivals data showing an ongoing slowdown in foreign student arrivals, Lawless expects even further slowdown in migration figures.
“With approximately 90 per cent of net migration to Australia arriving on temporary visas, the flow through to rental demand is direct and immediate. Less migration helps to explain a further reduction in rental demand,” he said.
4. Uptake of HomeBuilder
Lawless also expects new dwelling completions will take some of the heat out of the rental market.
“Materials shortages, capacity constraints and cost blowouts have seen a significant lag in delivering this stock through to completion and have likely resulted in a prolonged period of renting for many of those waiting for their new home to be completed,” he shared.
“As more new builds settle, we should see a gradual diminishment in rental demand associated with building delays.”
5. Investor activity on the up
The volume of lending to investors is up over 10 per cent over the year to June, with the value of lending jumping by 30.2 per cent.
As noted by Lawless, investors play a key role in delivering rental supply to market, which could aid in dampening supply-side pressures.
You are not authorised to post comments.
Comments will undergo moderation before they get published.