Breaking News: Australian Renters Offer 20% Premium for Homes

Finding a rental property continues to be a challenging task for individuals and families across Australia, despite a slight increase in the number of available homes in recent months. In response to the scarcity of rental options, renters are now resorting to offering above asking prices in order to secure a place to call home. By comparing the advertised rents with the actual rental bond amounts reported, we can estimate the extent of price bidding required to secure rental properties.

Understanding the reasons behind this unprecedented response from renters requires a closer examination of the factors contributing to the tightness of the rental market, as well as an exploration of the characteristics of areas where tenants have been willing to pay a significant premium above the advertised prices.

In March 2023, the national rental vacancy rate reached an all-time low of 1.31%. This rate measures the proportion of rental properties currently available for rent, and it indicates a sharp decline in available homes across the country. Over the past year, rental vacancies in combined capital cities have decreased by 0.38 percentage points, resulting in a staggering 21% reduction in available rental properties compared to the previous year.

Properties that do become available for rent are being snapped up at a faster rate. The national rental days on the market, which measures the number of days a property is listed before being rented, has fallen by 24% or 8 days since the beginning of 2021. The situation is even more pronounced in Australia's two largest capital cities, Sydney and Melbourne, where properties are now being rented out 30% quicker on average compared to two and a half years ago.

The tight rental market can be attributed to a multitude of factors. The demand for rental properties has increased significantly, mainly due to a reduction in average household size since the onset of the pandemic and, more recently, an increase in net overseas migration. Simultaneously, material shortages in the construction industry have caused delays in building completions, leading to a slower rate of new home construction. This imbalance between supply and demand has consequently driven up prices in the rental market.

Given the current scarcity in the rental market, it is no surprise that tenants are offering more than the listed price to secure a property. A comparison between actual weekly rents obtained from state tenancy boards and advertised rents during the March 2023 quarter reveals just how much extra tenants are paying.

In Sydney, more than half of the city's local government areas (LGA) see tenants voluntarily offering a premium above the advertised rent price to increase their chances of being chosen over other prospective tenants. While agents are no longer allowed to invite people to offer more than the advertised rent price, renters still have the option to voluntarily offer more. This trend is especially noticeable in areas closer to the CBD, where the difference between the actual and advertised price is even more substantial.

In Melbourne, a similar pattern emerges, with actual rents surpassing advertised rents in a significant number of council areas. Tenants in middle-ring areas, located approximately 11-25 kilometers from the CBD, are also offering above the listed price to secure rentals. The competitive council areas of Yarra, Port Phillip, and Brimbank are prime examples, with tenants willingly paying a premium of up to 7.6%, 6.2%, and 5.3% respectively to secure their desired properties.

In contrast to Sydney and Melbourne, renters in Brisbane typically pay less than the price listed on-site during the March 2023 quarter. Analyses of historical quarterly bond data and advertised rents show that this trend has been consistent in previous quarters as well. It appears that properties in Brisbane are being listed at higher prices than renters are required to pay, even though vacancy rates in the city remain low.

Looking ahead, it is likely that vacancy rates will remain low throughout the rest of the year. Although there have been some slight improvements in recent months, securing a rental property will continue to be a challenging endeavor. The return of overseas migration, alongside smaller households resulting from pandemic disruptions, is expected to sustain high rental demand, particularly in regions popular among both migrants and Australians, such as inner-city areas.

To ameliorate the market conditions and alleviate pressure for renters, it is crucial to focus on increasing housing supply. Reducing barriers to entry for property investors and boosting the construction of new homes, particularly in areas with high demand, are fundamental measures to make rentals more affordable.

The current rental market in Australia is characterized by a scarcity of available properties and a high demand from renters. To secure a rental, tenants are offering significant premiums above the advertised prices. This trend is particularly evident in major cities like Sydney and Melbourne, where competition for rentals is fierce. Brisbane, on the other hand, experiences a slightly different dynamic, as renters typically pay less than the listed price. To improve the rental market, increasing housing supply and addressing barriers for investors are key actions that need to be taken.