REA Group’s PropTrack says the supply of properties available for rental in Australia has fallen to an all-time survey low, and strong demand is expected to see tough competition for rental homes continue into 2024.
PropTrack’s December 2023 Rental Report is the latest piece of data that outlines torrid conditions for renters but, on the flip side, potential golden opportunities for savvy property investors.
“The rapid increase in Australia’s population exacerbated rental market challenges, as most
people migrating to Australia become renters,” says the report’s author, PropTrack’s Director of Economic Research, Cameron Kusher.
Over the 12 months to June 2023, Australia’s population exploded by a record 624,145 people.
Of these, a record 518,087 were from net overseas migration.
Low numbers of properties for rent
At the same time, PropTrack says new rental listings on Australia’s largest property search website - realestate.com.au - in December 2023 were at a new low for the survey - 4.6% lower than a year ago, and an astonishing 20.7% lower than the ten-year average for the month.
Total rental listings were also at a record low in December 2023, falling 4.7% annually to sit 30.2% below the December decade average.
Perhaps, this is unsurprising when you consider the national rental vacancy rate.
PropTrack says that it remained near record lows at 1.1% in December 2023 and was lower than the 1.3% recorded in December the previous year.
PropTrack also says that limited supply and high demand saw rental prices skyrocket in 2023, with the national median advertised rent on realestate.com.au rising 11.5% over the year to $580 per week.
A grim outlook for renters, better news for investors?
If there is any good news for renters in the PropTrack report - and there’s not much - it’s that 2023 saw a slower rate of rental price growth than the 15.6% increase in 2022.
However, it’s worth noting where the exceptions were.
Annual rental growth in December 2023 was stronger in the key markets of Sydney and Melbourne than it was in December 2022.
Regional Western Australia (WA) was the only other region of Australia to buck the trend.
Looking forward, Cameron Kusher says that while PropTrack expects “rents to continue to rise this year, it’s likely that the rate of growth will slow.”
“The already higher cost of renting, and an overall increase in the cost of living will limit rent price increases moving forward,” he says.
The tight rental market has seen rental yields increase for landlords, with the combined capital cities measure trending up, as regional yields fell before plateauing.
Interestingly Mr. Kusher notes that, “nationally, investors are still exiting the market.”
“There has been a rebound in new investor lending this year but it is not enough to sufficiently improve stock levels.”
Where the Stage 3 tax cuts come in…
Largely drowned out in much of the recent noise about who gets what from the Albanese government’s revamped Stage 3 tax cuts were some interesting bits of analysis about what impact re-shaping the tax plan could have on the property market.
The first is the sheer lift to the borrowing power of middle-income Australians.
With more tax benefits flowing to people on salaries of less than $150,000, many people who believed they were stuck in the rental market for good, might suddenly find their new borrowing capacity puts home ownership within reach.
Calculations by the Freedom Property Investors research team show that the revamped cuts will increase borrowing capacity by up to 6 per cent across the middle-income bracket, including many potential first-home buyers.
At the other end of the spectrum, higher income earners who’ve been “denied” promised higher tax cuts may turn instead to property investment strategies which include negative gearing to minimise tax.
The suggestion comes from no less than noted ANU economist Ben Phillips.
Mr Phillips is one of Australia’s top experts on economic and social research - and specialises in modelling tax and government payment systems.
He told the Financial Review that the changes to the Stage 3 tax cuts mean “tax reduction strategies such as negatively gearing property would become more attractive for high earners to reduce their tax bills.”
So whether more people suddenly find they qualify for a home loan and are able to leave the rental market, freeing up rental housing, or whether more Australians on higher incomes consider negative gearing investment strategies, it’s clear the changes to Stage 3 tax cuts will have significant implications for the property market.