In a startling revelation, CoreLogic has reported that 90% of Australian suburbs experienced an increase in rental prices for both houses and units during the financial year 2023. This trend was particularly pronounced in Adelaide, Perth, and regional Western Australia, where every suburb reported a year-on-year increase across both housing categories.
According to CoreLogic economist Kaytlin Ezzy, a significant shortage in rental listings has been a key factor driving this upward pressure on rents. Higher interest rates have also played a role, negatively impacting the supply side of the equation. “Investors tend to shy away from the housing market during negative economic shocks,” Ezzy explained.
The sharp rise in interest rates has coincided with a 23.6% fall in new housing investment lending between April 2022 and May 2023. This includes a slight recovery in investment lending in recent months, which has lifted 10% from a low in February this year.
On the demand side, record levels of overseas migrants have bolstered demand for rentals, particularly in the inner-city unit precincts. This has exacerbated an already concerning imbalance between supply and demand. “For Perth in particular, there is a persistent shortage of rentals, with total rent listings now about 50% lower than the historic five-year average,” Ezzy noted.
Unit markets in Brisbane, Adelaide, Perth, and Darwin all saw rises across the previous financial year. However, a few markets in Sydney, Melbourne, and Hobart recorded marginally falling prices for unit accommodation. Despite these outliers, Sydney, Australia’s largest city, recorded some of the country’s most extreme gains.
“Despite a few minor declines in the city’s Central Coast region, Sydney units continue to record some of the strongest rental growth across the country. Units in Sydney’s inner-city market of Haymarket recorded the highest annual rise, up 32.6% or $276 per week, followed by Georges Hall (31.3%) and Arncliffe (30.9%) in the city’s inner south-west,” Ezzy said.
In contrast, Canberra was the only city to see price drops that could be considered significant, with 18 unit markets recording a decline in rent value over the past financial year. Canberra and Hobart were the only two cities where supply was making positive gains, with rental listings trending well above the previous five-year average in these two markets.
The rental market for houses painted a less extreme picture, with 147 of the 1,686 suburbs analysed recording a decline. This was heavily influenced by Canberra, where weak population growth, more supply, and already elevated rental prices saw just two suburbs (Watson 0.8% and Crace 0.1%) record an upward swing in rents for houses.
Looking ahead, Ezzy noted that while a lack of supply will likely keep rents elevated in the year ahead, price increases are expected to slow. This is largely because renters are reaching their affordability ceiling. “While annual rental increases remain fairly geographically widespread, it’s likely we’ll see the pace of rental growth continue to moderate over the coming months, as cumulative rental growth pushes more renters towards their affordability ceiling,” she commented.