Why Australian rents are set to keep climbing

The surge in rental rates across Australia, with consecutive annual increases of 8.3% in 2023, 9.5% in 2022 and 9.6% in 2021, reached a record high in January 2024 at $601 per week, according to CoreLogic.

This relentless climb has been driven by a significant imbalance between the demand and supply of rental properties, with the trend expected to continue into 2024.

But what’s caused the imbalance?

?Population growth

Growing population figures have put pressure on the rental market and the supply of housing has not kept up.

As international border restrictions were lifted in 2022 post-pandemic, there was a surge in migrant numbers. Migrant arrivals in 2023 increased 73.0% from the year before to 737,000, according to the Australian Bureau of Statistics (ABS).

With many migrants initially renting when they first arrive, the competition for available rental properties has intensified, putting upward pressure on rental rates.

Shortage of rental units

The pandemic also played a role in exacerbating the rental market's supply challenges.

During 2020 and 2021, many investors sold off their rental properties, creating a shortage in the supply of available dwellings. Furthermore, building approvals have also gradually declined, down 8.3% from November 2022 to November 2023, according to the ABS.

This means fewer new homes are entering the market to help ease demand.

Future projections

Looking ahead, it’s likely tight rental market conditions will persist into 2024 as demand continues to grow while housing supply remains constrained.

The Centre for Population predicts that the country's population will continue to expand over the next few years, with an annual growth rate of 1.4% from 2024 to 2026.

At the same time –?and despite the federal government’s attempts to address the housing demand –?a persistent shortage of new dwellings remains a challenge.

Housing supply has also been slowed by the rising costs of building materials and labour affecting the construction industry. This was further exacerbated in 2023 by fewer new homes being sold, compounded by the Reserve Bank of Australia's multiple interest rate hikes in the last 18 months, resulting in fewer new homes being sold.

“This lack of new work entering the construction pipeline is expected to produce a trough in new house commencements in 2024, when Australia will start construction on just 95,400 new houses, the weakest year in over a decade,” said Housing Industry Association senior economist Tom Devitt.

This shortfall of housing will continue to create a competitive and tight housing market.

Opportunity for investors

With the population continuing to grow and no immediate solution to the housing shortage, rental rates across the nation are expected to keep rising. For investors, this could mean a good opportunity to take advantage of high rental yields.

Naturally, for that to happen, you need to buy the right property in the right location. As an expert buyer’s agent, A Game Property Advisory can help with that.

Interested in buying a property? A Game Property Advisory can help you buy an investment property or Home, making sure it's an A Grade asset in the right location and secure it at the best price. To get started, contact Jim on 0422 446 170 or [email protected].