(February 2025 Blog) Rental growth has slowed but is still climbing
While there have been some recent indications of a slight easing in the Australian rental market, the overall situation remains tight.
The national rental rate grew 5.3% year-on-year in November, compared to 5.8% the month before, according to CoreLogic. This was the smallest annual increase since April 2021. Comparatively, at the same time last year rents had grown 9.1%.
For houses, rents grew in all capital cities in November, according to CoreLogic but at a slower rate compared to the previous month.
Here’s a look at the annual change in rents in October versus November:
* Perth up 9.4% vs 8.7%
* Adelaide up 6.7% vs 6.5%
* Hobart up 6.5%
* Melbourne up 5.4% vs 4.9%
* Sydney up 5.1% vs 4.0%
* Brisbane up 4.4% vs 3.6%
* Canberra up 3.2% vs 2.7%
* Darwin up 2.1% vs 1.8%
One reason for the slowdown in rental growth has been the gradual increase in the average household size, which is helping to moderate rental demand.
“A trend towards smaller households during the pandemic was a key factor boosting housing demand, particularly demand for rental housing, as group households split up and Australians gained a preference for more space. A record low in rental affordability is probably a central reason for the rebound in household size, with high rents likely to be forcing a restructuring of households as renters look for ways to minimise their housing costs,” said CoreLogic research director Tim Lawless.
Market remains tight
Despite these changes to the pace of rent increases, the market remains very tight. The national vacancy rate was 1.4% in November, according to SQM Research. While this was a slight increase from October’s 1.2%, it is still well below what is considered a balanced market. The threshold for this is 3.0%, according to the Real Estate Institute of Australia.
The tight market is caused by a combination of factors, including strong population growth. According to the Australian Bureau of Statistics (ABS), in the 12 months to June, the country’s population grew by 2.1%. Despite a decline in the number of overseas arrivals (down 16.8% year-on-year), the volume coming from natural increases grew, up 3.4% from the previous year.
At the same time, the supply of rental properties remains constrained. The number of new loan commitments in September 2024 was around 14.4% lower than the most recent peak of late 2021, according to the ABS.
With the population growing over this period but fewer investors buying property, this has put pressure on the rental market. Although there has been some growth in investor activity in the last year, it seems unlikely that it will match demand from tenants, thus keeping the market tight.
For investors, a tight rental market can present an opportunity to supply A-grade properties in good locations, meeting renter demand.
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.