Availability of rental properties remains close to historic lows

Australia’s rental housing market remains tight, and there’s unlikely to be a let-up anytime soon, according to new data from REA Group. 

The latest PropTrack Market Insight Report finds vacancy rates for rental properties remain close to historic lows.

The national rental vacancy rate rose fractionally from February—just 0.04 percentage points—to 1.11% in March 2024.

However, conditions are tighter than they were a year ago, declining 0.14 percentage points since March 2023.

That’s a vacancy rate 55% below pre-pandemic levels.

“Rental conditions saw a slight improvement in March, though renters should expect little respite given vacancy rates remain close to historic lows in most markets,” says PropTrack economist Anne Flaherty.

Analysts generally consider a vacancy rate of around 3% “healthy”, as it represents a market that’s balanced between tenants and owners. 

A vacancy rate of less than 2% usually implies high rental demand. 

Lower vacancy rates also often equate to higher rental yields for investors.

The details

PropTrack says rental vacancies across their combined capital cities measure was the second lowest level on record in March 2024, with just 1.08% of rentals vacant.

Adelaide has the tightest rental market of any capital city, with a vacancy rate of just 0.83%.

“Adelaide has overtaken Perth to become the most difficult capital city to find a rental property in, with vacancy unchanged over the month,” PropTrack’s Anne Flaherty says.

The South Australian capital has experienced vacancy rates below 1% since September 2021, longer than any other capital city.

Perth’s vacancy rate rose 0.11 percentage point in March, the largest increase of any market. 

Even so, availability was scarce, with just 0.86% of rentals sitting vacant.

Brisbane saw a slight easing, with the vacancy rate up 0.03%. 

Sydney and Melbourne’s vacancy rates also eased - 0.04 percentage points to 1.16% and 0.05 percentage points to 1.12% respectively, but it’s still harder to find a rental property in Australia’s two largest cities than a year ago. 

According to PropTrack, Canberra and Darwin were the only capital cities to see vacancy rates tighten in March, down 0.08 and 0.38 percentage points, respectively.

“High levels of migration, primarily focused across Australia’s capital cities, has driven increased demand for rentals.” Ms Flaherty says.

“Over the past four years, the number of vacant homes has fallen by 58% across the capital cities and by 47% in regional areas.”

Rental trends

Another forecaster - Oxford Economics Australia - believes the fact that overseas migration “looks to have peaked” and the formation of “larger rental households” might offer some hope that the hot rental market may start to cool down over the next few years.

It says after surpassing half a million in 2022/23, net overseas migration is projected to taper back to 410,000 in 2023/24 and down to 250,000 per annum by 2026/2027.

Oxford forecaster Maree Kilroy says declining rental affordability is also reversing the COVID-19-era phenomenon, which saw the formation of lots of smaller “households” as many people worked from home.

“This is especially evident in Sydney, Hobart, and Adelaide, which is forcing larger rental households to be formed,” Ms Kilroy says.

Maree Kilroy is also expecting much lower growth in rents of 3.2-3.6% over the next three years.

Contrast that with 12.9% rental growth in 2023.

“Stress on household budgets has reached a level that will significantly limit the capacity for further rental gains while the return of interest rate cuts from late 2024 will ease leveraged property outgoings,” Ms Kilroy says.

“On balance, we expect this to pass through to more modest rent increases at lease renewal.”