Advertised rents projected to rise at steepest rate
Skyrocketing residential rents probably won’t peak until early next year as the shortage of rental homes amid spiking migration is expected to persist over the next 12 months, according to a Westpac forecast.
Pat Bustamante, senior economist for Westpac Business and St George, said the current rental crisis will likely be longer and more severe than previous cycles as rental demand vastly outstrips supply.
“Given the current supply and demand dynamics and the lag in supply, the peak would likely take longer than people expect,” Bustamante told The Australian Financial Review. “The return of migrants and international students is providing an important injection of labour supply, but it’s also putting a further strain on the rental market. Unlike the previous cycles, we’re not seeing the supply response because interest rates are increasing and there’s also a lag between approvals and construction, which means we’re unlikely to see a reasonable amount of new supply until the middle of 2024.”
Westpac predicted that advertised rents would spike by 11.5% this year, the steepest annual increase on record. That would bring the average asking rent nationwide to $633 a week, an additional $65, AFR reported.
“This could be enough to entice investors and developers back into the market, which would ease the supply crunch,” Bustamante said. “We expect this to happen towards the end of 2023 in some pockets, only after further rent hikes.”
Migration strains supply
CoreLogic head of research Eliza Owen said the rental crisis had been exacerbated by the 1.3 million returning overseas arrivals in 2022.
“Long-term overseas migrants largely rent when they first come to Australia, adding to demand, and short-term visitor arrivals will also require accommodation, which might draw more investors away from the long-term rental market to take advantage of tourist demand,” Owen told AFR. “There may be another demand surge as China moves away from zero-COVID, particularly in the second half of the year.”
According to Westpac estimates, about 70% of migrants enter the rental market, and it takes them between four and seven years to buy a home. Bustamante said the uptick in migration numbers and extremely low vacancy rates had lifted annual advertised rent increases at a rate not seen in more than 10 years.
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“Already, we have seen advertised rents growing at over 10% annually and we are only at the beginning of the rental shock,” he told AFR. “Plus, this time, we are not expecting to see the same supply response as in the late 2000s. This time around, we have strong migration and population growth, but interest rates are on the up, and there’s a risk they could remain elevated for some time (depending on how inflation evolves). This will delay and dampen any supply-side response, prolonging the shortage in rental properties.”
“This is universal”
Kent Lardner, director of Suburbtrends, told AFR that market indicators like vacancy rates and supply pointed toward rent hikes in nearly every suburb.
“This is universal. In previous years we could always find higher vacancy rates in select regions or in the higher-density city locations,” Lardner said. “Today I counted just eight out of 336 areas with vacancy rates over 3%. I’ve never seen anything like this. And when you add the very grim pipeline supply, it is hard to see anything other than a rental crisis for the next four to five years.”
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