Alarming Data: Australia's Rental Property Shortage Worsens

Discover the latest data on Australia's rental property shortage. Vacancy rates hit record lows, causing rents to soar. Find out why this is happening and how it's impacting different regions.

The persistent undersupply of rental properties is causing vacancy rates to plummet and rents to soar. According to the latest PropTrack rental vacancy data for August, the national rental vacancy rate has hit a new record low of 1.10%. This represents a decrease of 0.14 percentage points compared to the previous month. The tightness in rental markets is evident in all capital cities except Darwin, with Canberra (-0.26 ppt) and Sydney (-0.19 ppt) experiencing the sharpest drops in vacancy rates. Perth, on the other hand, has reached a record low in terms of available rental properties. Even regional areas are not spared from the tightening rental market, as the vacancy rate in these areas has fallen to 1.10%. Regional South Australia and Queensland are particularly impacted, with vacancy rates dipping below 1%. The situation is a result of various factors, including the recovery of cities, the influx of overseas arrivals, and smaller households. Notably, Sydney and Melbourne have seen their vacancies more than halved, experiencing drops of 2.21 and 4.14 percentage points respectively since September 2021. Although household sizes have started to increase in both urban and regional areas due to rising rental prices and challenging conditions, this trend is offset by resurgent population growth, which is expected to continue. The Australian Bureau of Statistics reveals that Australia's population has grown by 2.2% in the year leading up to March 2023 — the highest growth rate since late 2008.

However, while rental demand remains strong, the supply of new housing has not kept pace. Construction activity has slowed, leading to a cumulative housing shortfall. Approvals for new housing have been running at near decade lows. The limited growth in the supply of new housing exacerbates the existing shortage. As a result, renters have little hope for respite, with tight market conditions persisting in most cities. Finding a suitable rental property has become increasingly difficult for potential tenants, which further pushes up weekly rents. Advertised rents in capital cities have risen by 14.6% in the year leading up to August 2023. With household incomes and wages experiencing slow growth, tenants may find themselves spending a larger portion of their income on housing. The rental crisis is particularly dire for low-income renters and welfare beneficiaries, who face an increasingly unaffordable market.

The shortage in affordable rentals is another pressing issue. Rental markets have witnessed significant price increases, leading to a decline in affordability across the country. Last month, realestate.com.au listed only 73 (0.06%) rental properties in the entire country as affordable for a single person on JobSeeker. For a single individual relying solely on the pension, only 108 (0.09%) properties were deemed affordable. Individuals earning the national minimum wage fared slightly better, with 1,689 (1.44%) properties considered affordable. However, even with a 5.75% increase in the national minimum wage as of July 2023, Sydney and Melbourne saw affordable rentals for minimum wage earners dwindle to just 0.4% and 0.6% respectively. Affordability for those on JobSeeker decreased by a third over the past year. In regional Queensland and South Australia, only one rental property out of all listings in August 2023 could be considered affordable. These statistics underscore the dire affordability conditions faced by individuals out of work and the substantial housing stress they bear.

The situation is equally challenging for pensioners, with affordable rentals shrinking by 30% since August 2022. Single age pensioners seeking affordable rentals have very limited options, with some capitals having no affordable properties listed in August 2023. The scarcity of available rentals and the critical shortage of affordable rentals emphasize the urgent need for increased funding and support for affordable and social housing.

Although the 2023 federal budget included a 15% increase in Commonwealth Rent Assistance — the largest increase in over three decades — this measure falls short. Rent assistance payments have not kept pace with skyrocketing rental prices. The widespread surge in rental prices across most markets has intensified financial stress among renters, especially when combined with the insecurity of housing tenure.

On a positive note, investor activity in the rental market has picked up. Investors are returning to the market, accounting for approximately one third of new credit. This marks an improvement from the lows experienced in 2021, when investors comprised closer to one fifth of new lending. However, property sales have slowed, resulting in rental stock growth at pre-pandemic rates. Unfortunately, this does not provide respite for renters. Demand continues to exceed pre-pandemic levels, vacancy rates remain historically low, and available rentals are scarce, leading to rapid rent increases. This is particularly challenging in Sydney, Melbourne, and Brisbane — the primary landing destinations for new arrivals to Australia, where rental supply is tight. Renters in Adelaide and Perth also face incredibly tight conditions.

In conclusion, the undersupply of rental properties, combined with high rental demand, has created a challenging landscape for renters. Vacancy rates have reached record lows, prompting substantial rent increases. This has led to a deterioration in rental affordability, affecting low-income individuals, welfare beneficiaries, and pensioners. The scarcity of available rentals, as well as the critical shortage of affordable rentals, underscores the urgent need for increased funding and support for affordable and social housing. Although investor activity has increased, rental stock growth has been insufficient to meet the demand, resulting in a continuation of rapid rent increases. Renters across major cities are unlikely to find relief in the near future, with tight market conditions persisting.