Renters are understandably keen to see prices ease but, unfortunately, falling house prices are unlikely to do much to reduce rents anytime soon, experts say.
The property market has been cooling off across the country, with the downturn led by Sydney and Melbourne.
For renters, who have been copping the fastest-growing rental prices in seven years, this might seem like a sign of lower rents to come.
Also read: Rental crisis: 2.7 million Aussies at risk
However, PropTrack economist Angus Moore said falling property prices weren’t going to do a lot to ease rental prices in the near term.
He said rental prices would continue to be influenced by dynamics in the rental market, including extremely low vacancy rates.
“That’s what’s really going to drive rents for the next 12 to 18 months,” Moore said.
In the longer term, Moore said falling house prices could start impacting the rental market because it would make it easier for people to move into home ownership.
“So some renters will exit the rental market into ownership, which will free up rentals and make the rental market a little less competitive,” he said.
“But that's a very long-term dynamic - that's not going to help in the next 12 months.”
This also hinged on prices actually trending downward over the long term, he explained, which may not happen, since the Reserve Bank of Australia was tipped to stop hiking rates next year.
Renters have hit a “ceiling”
My Housing Market chief economist Andrew Wilson agreed the rental market was acting independently of the housing market at the moment.
Wilson said renters could probably expect rents to keep going up as landlords looked to pass on higher mortgage repayments caused by rising interest rates to their tenants.
However, rents actually stabilised over the month of July, he said, which was not necessarily an indication of supply meeting demand but rather the market reaching an “affordability ceiling” where tenants simply couldn’t afford to pay anymore.
However, he said this slowdown would be short-lived because people would start demanding higher wages in the full-employment economy (which had the unfortunate effect of also fueling inflation and likely higher interest rates).
He also said while house prices had hit their ceiling, unit rents were still increasing.
That was because units in Melbourne and Sydney, in particular, were oversupplied during COVID, and now tenants were moving back into them because houses had become so expensive.
He said most of that oversupply had been absorbed and demand for units was only likely to increase as the migration of international students and other migrants continued to pick up.
Moore said migration was still well below where it was pre-pandemic but was picking up, with overseas interest in rentals on realestate.com.au growing.
Wilson also said there wasn’t enough supply coming onto the market for both renters and buyers.
On the other side of the equation, he said there would be some relief for renters when first home buyer schemes started helping more first time buyers onto the property ladder and freed up rental stock a little.
Market downturn concentrated at the premium end
Wilson also said high- and middle-market-priced homes were leading the downturn rather than the lower-priced homes favoured by first home buyers and investors.
He said it was mainly the discretionary end of the market putting their buying and selling decisions on hold.