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Rental market: new insights

We hear horror tales in some media of rent hikes and no properties available for lease, but what is the real story? The ABS decided recently to look at the available data in order to glean new insights into Australia’s rental market.

According to authors of a report released this week, Fred Hanmer and Michelle Marquardt, the 2021 Census shows that close to 30% of all households rent their home in the private rental market ­- a share that has risen over the past few decades.

Furthermore, the 2019/20 Survey of Income and Housing (SIH) shows that renters tend to have lower incomes and spend a larger share of their disposable income on housing costs compared with owner-occupier households (both outright owners and those with a mortgage), with the median private renter spending around 26% of their weekly income on rent.

Rents (both public and private) currently make up around 6% of the CPI basket, making it the second largest expenditure class, so understanding the rental market is important for policymakers as it has implications for patterns of consumption and savings by households, as well as inflation.

The research shows that median rents began increasing in all states in 2021 and have continued to increase over the past year. In February 2023, the median weekly rent amount was highest in the ACT at $560 per week and lowest in South Australia at $380 per week.

As for length of tenancy, around 90% of lease agreements are for 12 months or less, with the bulk being 12-month leases.

The figures also reveal that the share of six-month leases has declined since early 2021 in favour of 12-month leases, although it is noted that these figures reflect the share of currently valid leases and therefore understate the typical length of tenancy because renters may enter into a new lease agreement or a rolling month-to-month arrangement after their lease expires.

Around 2–3% of properties each month have a change in tenant, and while this might seem low, the figures show that this turnover has been broadly stable over the past four years or so. Quantifying the proportion of properties that have a change in tenant is useful as it helps to explain the large divergence between advertised rents and CPI rents. As discussed above, advertised rents have grown strongly of late; however, as they represent only a small proportion of the rental market, this has had a limited impact on the measure of rents included in the CPI.

Demographic impacts of the pandemic continue to be felt in inner-city rentals, with the data showing that although rents for properties that are close (less than 12.5 km) to a central business district began to increase in 2021, rents for many inner-city suburbs in Melbourne and Sydney are still below pre-pandemic levels.

In fact, 20% of the 2021 Census capital city rental dwelling stock have rents below pre-pandemic levels, while 20% have experienced rent increases of at least 10% since March 2020. Rent prices fell further and were slower to start increasing in Sydney and Melbourne compared with the other capital cities over 2020 and 2021, driven by factors including a higher prevalence of rent reductions, higher vacancy rates and larger declines in net internal and overseas migration. Nonetheless, the rental market has tightened significantly in inner-city areas over the past year, particularly for new tenancies that have experienced large rent increases.

Rent increases have become larger and more common over the past year for most properties in capital cities. This is the case regardless of whether properties have a new tenant or not, although increases have been more pronounced for properties with a new tenant.

Over the past year, rents have increased for almost three-quarters of properties, up from around one-quarter every year pre-pandemic. Rental prices for properties with new tenants are more likely to change than for properties with existing tenants.

Through mid-to-late 2020, new tenants tended to pay rental prices lower than or equal to what was being paid for a given rental property the year prior. However, since mid-2021, the majority of new tenants have been paying higher rent than was charged for the same property the year prior. This share increased to as high as 94% in February 2023, compared with 71% for properties with existing tenants.

The report concludes that the rental market has tightened considerably since 2021. Rent inflation has picked up and is broadly based across new and existing tenants, property types and the states. Rent increases have also become more common, and larger on average. Properties with a change of tenant have experienced larger rent increases than existing tenancies, and so have been more closely aligned to changes in advertised rents.

About Adam Nobel

CEO | Principal
M. Bus, Grad Dip Adv, B.Int Bus, LREA


0417 007 001

Adam is the founder and Principal of Hugo Alexander Property Group. With a previous career in advertising, 22 years experience in property investment, and 16 years in Brisbane real estate, he knows the market inside out to ensure his clients grow their wealth faster.

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