(August 2024 Blog) Is the rental market cooling?

Is the rental market cooling? 

Australia’s rental market has faced considerable challenges over the last few years due to an imbalance between supply and demand. This has led to soaring rental rates and very tight vacancy rates. 

But, Domain’s latest rental report shows rental rates[1] may be starting to stabilise. Over the June 2024 quarter, rental rates for houses in the combined capitals rose by 3.2% (see table). This was down from a 5.0% increase in the March quarter. 

Likewise, asking rents for units in the combined capitals grew by 1.6% in the June quarter compared to 3.3% in March. 

Does this mean the rental market is cooling?  

Largely, no. The rental market remains very tight and is likely to continue to do so. Here’s why: 

1. Growing population 

The country’s capital cities are all experiencing climbing population rates[2]. And, as the Centre for Population forecasts, this is likely to continue. These people need a place to live, and this has put pressure on available rentals. 

This is evidenced by the fact that, even with the usual upward tick over winter, vacancy rates in the capital cities remain very low.  

There are several reasons why the population in the country’s capitals is increasing.  

Increased overseas migration remains a large factor, despite new regulations set by the federal government to curb immigration. 

This is particularly true for both Sydney and Melbourne, which historically have attracted a large share of international students. Once the international borders opened after the pandemic, these students put a huge strain on both cities’ rental market, particularly in locations near universities.  

Other cities, like Perth and Brisbane, are seeing very strong economic growth which is drawing people into the city. This has also created an influx of interstate migrants. 

2. Slow construction  

The supply of new homes for buyers has remained very slow. The latest building activity data from the Australian Bureau of Statistics shows that the number of dwellings completed[3] in the March 2024 quarter declined 8.1% year-on-year.  

For some buyers, this means having to remain as tenants as there are simply not enough A-grade homes for people to buy.  

3. High interest rates  

With the official cash rate having remained at a high of 4.35% since November 2023, this has reduced the borrowing capacity of some buyers.  

Plus, the influence of increased demand from a growing population and a slow supply of new homes has combined to put upward pressure on houses. This has further reduced the number of people who can afford to buy homes, keeping them in the rental market. 

Buying an investment property 

While rental rates have slowed in growth over the last few months, there are still significant challenges facing renters. Increasing the supply of A-grade rental properties is crucial to alleviating pressure on tenants. 

By providing more rental properties, investors can help alleviate the pressure caused by growing demand, limited supply and high interest rates, ultimately supporting a more balanced rental market. 

Looking to buy a quality investment property? As an expert buyer’s agent, A Game Property Advisory can help you secure a quality property at a good price. Get in touch with Jim by calling 0422 446 170 or emailing jim@agameadvisory.com.au.