Rental housing vacancy rates hit a record low

NATIONAL VACANCY RATES HIT A RECORD LOW

The national rental index increased by 0.6% in September 2022. This is the lowest monthly rise in rents since December 2021, according to CoreLogic.

Rental Growth Easing in Regional Australia

Across Australia, rental growth reached a peak in May 2022 with a 1.0% rise; though since then the pace of rental growth has been easing month on month.

This trend in rents is evident across most regions but has been clearest across regional Australia where monthly rental increases have reduced from a peak of 1.4% in January 2021 to a low of 0.3% in September 2022.

Are We Reaching a Rental Affordability Ceiling?

With migrants returning to Australia from overseas and vacancy rates so low the slowing of rental growth is surprising. Some regions however have experienced a small upward trend in vacancy rates.

CoreLogic, Australia’s leading provider of property data and analysis report that “a gradual slowdown in rental growth in the face of such low vacancy rates could be an early sign that renters are reaching an affordability ceiling.

“Since the onset of COVID, capital city rents have risen 16.5% and regional rents are up 25.1%. It's likely renters will be progressively seeking rental options across the medium to high-density sector, where renting is cheaper, or maximising the number of people in the tenancy to spread higher rental costs across a larger household.”

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Australian Unit Rents Are Outgrowing House Rents

The demand for higher-density housing can be seen in the higher growth rate of unit rents over house rents as renters look toward more cost-effective housing options. Capital city unit rents increased by 3.8% last quarter compared with a 2.3% rise in house rents. This trend is broad-based.

How Does the Local Rental Market Compare?

Locally we have seen an increase of 3.72% in unit rents across the Cardinia Shire compared to 1.69% in house rents, while the suburb of Pakenham itself has seen the opposite with housing rents increasing by 6.78% and unit rents increasing by 5.72%.

The City of Casey is the opposite with the average rent of houses rising by 5.09% across the quarter and units rising by just 2.68%. The suburb of Narre Warren reflects this with house rents increased by 3.03% last quarter compared with a 2.45% rise in unit rents. Berwick, on the other hand, saw unit rents increase by 5.12% and house rents by 4.32%.

Is a Rental Supply Increase Far Away?

A material rise in rental supply seems a long way off, considering private sector investment activity is trending lower and a larger than normal number of investor-owned properties were listed for sale through 2021/2022. The outcome is that advertised rental stock sits at 35.4% below the previous five-year average.

What Do Future Rental Yields Look Like?

As rents continue to rise and dwelling values trend lower, gross rental yields continue to grow at a rapid rate. Capital city gross yields are the highest they have been since January 2021.

The biggest influencing factor in the current local housing market will be the continued rise of interest rates. Expected to continue rising throughout the first half of 2023, it is likely rental yields will continue to improve with the combination of slower but continued rental growth and falling values being a potential catalyst for national dwelling yields to return to long-term averages.

FIRST NATIONAL NEILSON PARTNERS RENTAL STATISTICS FOR OCTOBER 2022

October rental statistics

For further information on the local rental market please contact your local property management experts at First National Real Estate Neilson Partners at 9705 4888 who are always happy to answer your questions.