Why are the rental markets tightening and what does this mean for tenants?

Recent reports and industry experts point to rental markets tightening across Australia, particularly Melbourne. Experts suggest this is influenced by property law reforms, international migration, and other contributing factors putting the market in imbalance. 

This February, vacancy rates fell 1.3% across the country to what is being reported as a 16-year low. Most notably, Melbourne CBD’s vacancy rate fell from 4% to just 2.8%. SQM forecasts vacancy rates will continue to fall in CBD areas as borders open and we return to working from the office. 

Louis Christopher, Managing Director of SQM Research said: “This situation now represents a significant rental crisis across the country. The flooding may exacerbate the shortage of rental accommodation in NSW and Queensland in coming weeks.”

Christopher continues, “Overall, it is likely vacancy rates will fall again over March as the first week recorded yet another decline in rental accommodation listings. Some slight relief may be at hand as the current seasonal tightening we have seen at this time of year generally comes to an end over April.”

Stavros Ambatzidis, Director and Company Auctioneer at Obrien Real Estate says, “What it boils down to is that the two sides of the market, supply and demand, aren’t matching up. There are several factors currently influencing why demand far outweighs supply.”

Ambatzidis adds “Aside from the squeeze recent property law reforms have put on rental providers, the trends that I have noticed influencing this unbalanced market are; international and interstate immigration and something we can call the ‘AirBnb effect’.” 

Here is why the rental market is tightening.

Law reforms and land tax for rental providers 

Stavros explains that “With last year’s property law reforms, landlords have found themselves having to jump through hoops to make their rental properties comply to the new standards. It became easier for many of them to sell up and put money into shares rather than cop the mounting cost of compliance, especially in an upward-trending market as we saw across most of Australia last year.”

Anthony Webb, Director at Philip Webb Real Estate, was interviewed on the Homely segment of RPPM Srambled Eggs Breakfast Radio Show last week, saying “We have a large rent roll here at Philip Webb Real Estate. With changes to legislation, plus the way that landlords were treated during the pandemic and during lockdowns, we have had a lot of our rental providers simply say ‘it’s too hard to make this work and I’m going to sell’.”

Webb continues, “Over the last 12 months, we have seen the highest percentage ever of rental providers choosing to sell their investments, which is significant and telling”

He explains, “Many with multiple investment properties are rethinking real estate as an investment vehicle – land taxes, in particular, are now incredibly high, with some paying more in land taxes than they get in rental return, so it’s just not working for them.”

International immigration resumes

As Australia re-opens its borders to the rest of the world, we are starting to see a return to the pre-pandemic influx of short-term stayers and students, and increasingly those seeking a safer life a little further away from the current instability of Europe and America. 

And this isn’t just a hypothesis. Stavros explains, “Looking at recent website traffic, I’ve noticed a significant uptick in people viewing our rental properties from overseas.”

Australia is sitting pretty, presenting the ideal opportunity for immigration. But most families and singles moving to Australia won’t go in to buy a home straight away – they will need a long-term rental. This growing trend alone is tipping the scales towards heavier demand. 

The AirBnb effect 

Uniquely, in the regional markets, Stavros notes a trend that’s been building for a while now, of rental providers opting to market their coastal and rural properties as short-term rentals on sites like AirBnb. This can offer property owners the same return from a couple of nights as a whole week of rent, plus the owners have opportunities to enjoy the property themselves when it’s not booked. This, paired with our newfound ability to work remotely has led to a growing demand for long-term rentals in regional areas that simply aren’t there anymore. 

What does all of this mean for renters? 

Anthony Webb says, “A tight rental market means higher competition, which means we’re going to start seeing rent prices go up.”

SQM reported that we already saw weekly rental rises last year of 14% for houses and 8.5% for units across the country, and it’s set to go up.

“We can expect capital city rents to rise by over 10% in 2022. As it stands, the current rent rises represent the largest increase since the 1970s and so there are major near terms ramifications for inflation,” said Christopher (SQM).

What can you do as a renter trying to get a long-term tenancy in a super competitive market? 

Stavros suggest three tactics:

1. Make sure you are scouting all of the listing sites including Homely and setting alerts for properties that match your criteria so you can act fast when good properties come onto the leasing market.
2. Get to know property managers in your area. Ultimately, a property manager has the power to ‘fight’ for the applicant they think is the best choice for the rental provider. Research local property managers, reach out to them, show up to their inspections and make an effort to talk to them and let them get to know you as trustworthy tenant-material.
3. Have all of your documentation in order when you start the rental hunt. References, bank statements, ID, have it all ready to go – it will make each application faster and simpler for the property manager to process. 

Stavros also advises that in times of high competition, it’s not wise to bargain down the rental price and while it is illegal for a property manager or leasing agent to ask you to offer a higher price, you do have the power to offer even $10-15 higher than the asking price if you feel comfortable. 

For more tips on what to look out for when choosing a rental, check out a recent opinion piece detailing what to look out for when choosing a rental property.