RBA official emphasises supply constraints, not greedy landlords, as key driver of rental market challenges

Dr Sarah Hunter, Assistant Governor (Economic) at the Reserve Bank of Australia (RBA), has reiterated that supply constraints, rather than “greedy landlords,” are the root cause of the current challenges in both the rental and established housing markets. Her comments came during a speech at the Real Estate Institute of Australia’s (REIA) conference in Hobart, which commemorated the organisation’s 100th anniversary.

Dr Hunter highlighted the imbalance between new supply and new demand for dwellings as the primary factor influencing rental and housing market conditions. She noted that the level of demand relative to the available stock of properties is the key driver for market rents, with low vacancy rates explaining most of the movement in rental prices.

Importantly, Dr Hunter found little to no evidence of direct pass-through to rents from higher interest costs, challenging the notion of landlords simply passing on higher mortgage costs to tenants. REIA President Leanne Pilkington welcomed Dr Hunter’s assessment, stating, “This is contrary to much of the public debate about greedy landlords simply passing on higher mortgage costs and should stop the calls for rent freezes and other market interventions which do not address the problem and indeed exacerbate it.”

Dr Hunter also pointed out that the past couple of years has seen a “perfect storm” of constraints on activity in the housing sector. While much of the supply chain disruption has been resolved, the pipeline of projects remains elevated, and capacity constraints persist, particularly in finishing trades.

Ms Pilkington acknowledged that the skilled migration initiatives announced in the recent Federal Budget aim to address the shortfall but cautioned that it will take time to see the impact.

Dr Hunter suggested several potential avenues through which the supply-demand imbalances may be resolved, including an increase in average household size, moderation in the pace of growth in construction costs, developer response with new supply, and government initiatives to streamline the approvals and build process to reduce costs. However, she emphasised that there is no quick fix to the underlying supply problem.

Ms Pilkington concluded, “It is clear that there is no quick fix to what is a supply problem, it is also clear that government’s across all three tiers need to do their bit to address the constraints and this includes encouraging private investment.”