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Bleak outlook for renters is good news for investors

·3-min read
Property and real estate agent
Rental rates in Sydney surged by 25.8 per cent over the past 12 months. (Getty/AAP)

It’s tough out there for tenants, with a shortage of available rental properties - both houses and apartments - and intense competition for the limited supply driving up prices around Australia.

And there’s no relief in sight.

Also by Michael Yardney:

According to Andrew Wilson’s My Housing Market, the already-low vacancy rates continued to fall over May, driving rents even higher.

The national weekly median asking house rent increased by 16.8 per cent over the past year to $537, with the May house vacancy rate steady at 1.2 per cent.

A table showing median asking rents for houses in Australia for May 2022.
(Source: supplied)

Wilson reported that vacancy rates for houses were at record low levels in Sydney, causing rentals to surge by 25.8 per cent over the year.

On the other hand, Brisbane continues to report the most affordable weekly house rents, but even these have increased by 7 per cent over the year.

Apartment rents also rising

Unit rentals have also recorded strong increases, with apartments rents up 16.1 per cent over the past year as decreasing housing rental affordability has forced many tenants to consider apartment living.

A table showing median asking rents for units in Australia for May 2022.
(Source: supplied)

Why are rentals growing so strongly?

It all has to do with supply and demand.

At present, the competition for rental accommodation is high. Tenants have very little choice, with the number of available rentals trending lower, month by month.

Why is supply so limited?

It all started in 2017, when the Australian Prudential Regulation Authority (APRA) restricted funding to investors, meaning the number of investors providing rental accommodation decreased.

Then, during the pandemic era of 2020 and 2021, many investors sold up and, in general, owner-occupiers purchased their properties, further decreasing the stock of rental properties.

However, during this time, the average household size got smaller as many young renters fled share houses for the “safety” of one- or two-bedroom apartments.

And, more recently, with our borders reopening and tourism increasing, many properties that had been put into the long-term rental pool were listed back on Airbnb, thereby lowering the number of properties available for long-term tenants.

What’s ahead?

Rental demand doesn’t look likely to ease any time soon, particularly with our borders reopening and international students returning, filling the once-vacant CBD apartments.

Most immigrants coming to Australia rent for a few years until they get their bearings in their new homeland.

Also, many potential first home buyers will remain tenants for longer as inflation and the rising costs of living, including soaring rents, eat into their ability to save a deposit.

On the supply side, more investors are coming into the market, but the real challenge ahead is that building approvals for new apartment complexes are dropping.

And to make things worse, many of the apartment complexes on the drawing board will not get out of the ground because they are now unprofitable due to steep price increases and interest rate hikes at a time our housing markets are entering a correction phase.

So, while it’s a bleak time for tenants, property investors can look forward to rising rental returns.

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