Australia is in the midst of a worsening rental crunch, with prices rising in most parts of the country due to a shortage of available properties and high demand.
But there are some areas where markets are tipped to really tighten over the next year.
Joe Tucker, director and head of research at Property Principles Group, said more than 40% of the 15,000-plus suburbs in Australia had a vacancy rate of just 1% – or lower.
That’s well below the rate that’s considered to be a balanced market of about 2% to 3%.
“With the recently elected Federal Government indicating it wants to increase migration to fill labor shortages, this will put further pressure on the rental market,” Mr Tucker said.
“There is a backlog of 140,000 people for the skilled migrant visa. These people are looking to come to Australia and will need to live somewhere.”
And some regions will be harder hit with demand that far outstrips supply.
Migration will lead to surges in Sydney and Melbourne
The “big change” to rents is likely to be in Australia’s two largest cities of Sydney and Melbourne, said Cameron Kusher, executive manager of economic research at PropTrack.
Regional markets have definitely been much tighter since the onset of the Covid pandemic, but there’s evidence this is shifting.
Some regions are experiencing a fall in demand, an increase in rental listings, and properties starting to take longer to lease, Mr Kusher said.
“On the flipside, capital city markets, particularly Sydney and Melbourne, have seen a significant increase in demand and large falls in supply and rental days on site over the past year,” he said.
“Vacancy rates are tightening quickly, and we expect a further tightening of these markets over the coming months.”
The rent crunch is being felt across much of the country but some areas are set to see conditions worsen. Picture: Getty
Overseas migration will pick up from now and most new arrivals tend to migrate to either Sydney or Melbourne.
There is also likely to be more inter and intrastate movement back to these cities, he added.
“These people all need somewhere to live and at least initially it is usually a rental that they need,” Ms Kusher said.
“Already tight supply and strong and strengthening demand for rental accommodation in these two cities is likely to result in further declines in rental days on site and higher rents.
“Remember that in many parts of these cities, rents remain below their pre-pandemic levels.”
Hotspotting director and founder Terry Ryder said Sydney and Melbourne had a vacancy rate above 3% just a year ago, but they’re now down to below 2%.
When borders were closed during Covid and there was a halt to overseas migration and a slump in international student numbers, vacancy rates in these cities, particularly in the inner-city, rose.
However, they have come down “really sharply” since borders reopened and will only fall further as the rental shortage gets worse, Mr Ryder said.
Inner-city Melbourne in particular is likely to see sharp rises in rental rates, he believes.
“We’ve seen rents rise 30% or more in the past 12 months in those inner-city apartment areas like Southbank and Docklands, and that’s going to continue because we’re really only at the beginning of the return of migrants and overseas students .”
Adelaide rents will spike due to the lifestyle push
Rental markets in lifestyle locations have been under particular strain as people move to regional areas to take advantage of flexible work arrangements, Mr Tucker said.
With more employers making working from home an accepted practice, it’s likely this trend will continue or even increase, he added.
“These areas were already tight for rentals, but this influx of new people is straining the available rental stock. Anything that comes on the market is snapped up right away.”
Adelaide is a booming city due to strong interstate migration, with coastal pockets particularly popular. Picture: Getty
Adelaide has been picked by many property experts as the capital city where rents will rise the most in the short- to mid-term due to that strong lifestyle appeal.
The city’s coastal suburbs are tipped to see the biggest spikes.
Mr Ryder said Adelaide had the lowest vacancy rate of all the capital cities at 0.4%, making it the tightest rental market in the country.
He singled out the Onkaparinga Local Government Area, south of the Adelaide CBD, as a spot where rents would rise the most, with 12 of the 13 postcodes in the municipality having vacancy rates of just 0.1% to 0.3%.
“Rents have risen more than 20% over the past 12 months, and they’re just going to keep rising,” he said.
“A lot of people rent and buy in the area because it provides lifestyle at affordable prices, with lots of beach suburbs, and the beautiful McLaren Vale wine district is also part of it.
“One of the reasons rents will keep rising so fast is that at open houses for rentals there are queues of people showing up and they start outbidding each other, offering more than asking rent.”
High demand and low supply will continue to push prices up. Picture: Getty
Adam Hindmarch, managing director at Prospa Property Advisory, said there was a ‘rental property squeeze’ in Adelaide, with demand ‘through the roof’.
Property managers are reporting that properties were being rented in just minutes or hours rather than days or weeks, Mr Hindmarch said.
More than 70 people could attend an open inspection for an average three-bedroom home, with around half submitting applications, he added.
“Agents are setting their prices higher now and renting properties sight unseen.”
Mr Tucker has identified areas where rentals are set to soar by looking at regions spending less than 30% of their household income on rent, according to the 2021 Census, as well as where vacancy rates are below 1% and listings are becoming tighter.
This is because these areas are seeing strong demand for rentals, and residents can also afford to pay more, as opposed to areas where rentals are already very expensive, accounting for 50% of household income.
In Adelaide, he also picked the City of Onkaparinga and specifically the suburb of Seaford Heights, along with the City of Marion and specifically Hallett Cove, also south of the CBD.
He also tipped Mawson Lakes in the City of Salisbury.
Lifestyle lure will drive price growth in many regions
The same factors pushing rents up in Adelaide are also in play in Perth and parts of Queensland, Mr Hindmarch said.
In Perth, people are moving to the city for lifestyle and employment, with the mining sector also firing strongly, he added.
Mr Tucker picked Rockingham, Singleton, and Port Kennedy, south of Perth, as areas to watch, along with Joondalup, Kinross, Currambine, and Iluka, north of Perth.
All are located along the coast.
Perth is another city seeing strong demand for rentals, particularly in suburbs on the water. Picture: Getty
Elsewhere, he picked Shepparton and Traralgon in Victoria, and Toowoomba and Bundaberg in Queensland as areas likely to see sharp rental rises.
Queensland will see spikes due to record high interstate migration to the Sunshine State, according to BuyersBuyers co-founder and buyer’s agent Pete Wargent.
“The rental market has been red hot on the Sunshine Coast but may now be peaking,” Mr Wargent said.
“Rental increases over the next six months are likely to be seen in Brisbane and on the Gold Coast, in particular.
“Inner Brisbane had a high vacancy rate in 2017 when all the new apartments came online at nearly 9%, but even so, vacancy rates are now tight. For houses in suburban Brisbane the rental market is tighter still.
“I expect to see more examples of price bidding at open homes of popular suburban rentals by summer.”
The Gold Coast has seen an influx of new residents since the onset of Covid. Picture: Getty
Mr Ryder said there were lots of postcodes on the Gold Coast where vacancy rates were less than 0.5%, and rents had risen by 20% to 30% in a year right throughout the region.
It’s a trend likely to continue because the Gold Coast continues to be a growth city, he said.
“Its economy is really just starting to recover with the return of international tourism and rents will only get stronger.”
The New South Wales Central Coast is also likely to see a sharp rise in rents, Mr Ryder said.
Many postcodes already have vacancy rates well below 1% and prices are rising as demand continues among those arriving from the cities in search of a better lifestyle.
There is little relief in sight for struggling tenants. Picture: Getty
He also picks the city of Wollongong, south of Sydney, as a market on the move, with many postcodes having vacancy rates of 0.2% and 0.3%.
“It’s a growth city, a prosperous city, and well connected to Sydney, so we’ll probably see that rental growth continue.”
Queanbeyan, a stone’s throw from Canberra, is another area likely to see a rental surge, as well as the Tweed Heads in northern NSW, according to Mr Ryder.