Asking rents for houses in Sydney have surged more than 16 per cent in the past year – and strongly in other markets as well – as vacancy rates sink near historic lows, making the task of reining in inflation more difficult, experts say.
The national vacancy rate has fallen to 1 per cent, while Perth and Adelaide have the tightest markets in the country with their vacancy rates at 0.4 per cent, according to SQM Research.
Rents are up 9 per cent nationally overall, and higher in some markets. Peter Rae
An undersupply in housing, coupled with a surge in migration has pushed rents higher in most markets. The average rent across Sydney houses rose 1.5 per cent in the past month to $1013, and increased 1.3 per cent for all dwellings to $815. House rents in Adelaide jumped 1.9 per cent to $603, according to SQM Research.
In Perth, houses rents are up 1.4 per cent in the past month, to $731. In Melbourne, house rents are up 19 per cent in the past year to $703. Only in Canberra and Hobart have rents fallen in the past 12 months.
“After a minor reprieve earlier this year, we are back to the record low in rental vacancies of 1 per cent,” said Louis Christopher, SQM Research founder.
“Vacancies have been tightening again across the nation. They are tightening in our regions as well as our cities.”
Mr Christopher said the prospect of rents easing over the next six months was “very unlikely to occur” in the current conditions.
“And most likely, market rental increases will continue to rise between 10 and 15 per cent. Such rises will continue to work against the RBA’s objective of bringing back inflation to 2 per cent to 3 per cent.”
Asking rents, also termed advertised rents, are effectively a lead indicator for the broader pool of rents which are measured in CPI figures. Last month’s official CPI figures showed rents had risen 7.6 per cent annually, the largest annual increase since 2009 recorded by the Australian Bureau of Statistics.
But as new leases are struck and flow through to the stock of rental properties measured, rental inflation is expected to rise further.
Last month, new RBA governor Michele Bullock tipped rental inflation in the CPI measure could hit 10 per cent within months, in her first appearance in that role at Senate estimates.
The RBA repeated its warning on rental inflation last week in its quarterly statement on monetary policy. Rents are counted as part of services inflation, which has become a big driver for overall inflation.
“Housing supply has not kept pace with the increased demand for housing – the result of a decrease in average household size since the beginning of the pandemic, robust nominal income growth and the increase in population growth,” the RBA said on Friday.
“Advertised rents have increased 30 per cent since prior to the pandemic, much more than the increase in CPI rents so far. Together with historically low vacancy rates, and little sign that tight rental market conditions will ease in the near term, this is expected to keep rent inflation elevated for some time.”
Along with high migration numbers, Australia is falling short on its hoped-for building of new homes, putting further pressure on rents. Compounding the problem, the country’s massive infrastructure pipeline is competing for labour and construction materials, crowding out the residential construction market.
Economist Justin Fabo said the increase in asking rents – albeit peak growth may have waned – would ultimately flow through to the overall stock of rental properties then “that bit of the CPI basket is going to stay strong for a while”.
But Mr Fabo also noted some relief may be in sight, with signs emerging in the US that growth in housing rents was finally easing.
“The common view over there [in the US] is that will flow through to the CPI measure over the next year or so. If you think that maybe we are lagging [the US], then possibly there is a point in the not too distant future where we start to see some slower growth in rents, but we’re certainly not there yet.”
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