07 Apr The Australian Rental Market Now and Looking Forward
The latest CoreLogic Quarterly Rental Review, released in April 2023, reports some significant improvements in the Australian rental market for investors who are renting out their assets. In addition, the expected migration boom in the remainder of 2023 and beyond suggests that this is the ideal time in which to invest, as demand for rental properties is only going to increase, while supply remains comparatively stagnant.
The current state of the rental market
According to figures published by CoreLogic, rents increased by 2.5% in the March 2023 quarter, an improvement on the 2.0% achieved in the quarter to December 2022. This has been fuelled by a significant rise in unit rents of 5.3% and 4.3% in Sydney and Melbourne respectively, and 3.9% across the entire nation. During the same period, house rents rose by 2.0% nationally.
Over the 12 months to March, this represents a 10.1% rise, equivalent to an annual rent rise of $2,727, or $52 per week.
How limited supply is impacting on the rental market
One of the biggest drivers in the current market, and which will continue to play a pivotal role in rent rates for the foreseeable future, is the high demand for rental properties nationwide that has in part been created by limited supply.
The other significant contributing factor is the fact that we have seen a rapid and significant increase in the net overseas migration rate into the country, This looks set to continue, and is also expected to be accompanied by a surge in the numbers of returning international students.
Both of these factors have meant that the national vacancy reached a new record low of 1% in February 2023 and 1.1% in March.
Given that the circumstances that have contributed to the rise in rents (i.e., limited supply and ever increasing demand) do not look like changing any time soon, the need for access to rental properties is not expected to diminish, which presents a promising prospect for investors.
Another positive to emerge from the CoreLogic data is that the annual rental hold period national was 1.88 years for the 12 months to March 2023 (up from 1.57 years at the outbreak of covid).
The impact of migration on the rental market in Australia
During the covid period, migration to Australia naturally slowed quite significantly. However, now that restrictions have been lifted, net migration rates into Australia are returning to, and are actually expected to exceed, pre-covid levels.
The temporary slowing of migration, however, was not accompanied by an increase in the size of the housing stock, particularly the number of properties being made available for rent. As a consequence, it is estimated that there is already a shortage of around 160,000 homes across the country, according to Mike Zorbas, CEO of the Property Council of Australia, with this number only set to grow.
Migration into Australia will continue to rise
Net migration into Australia grew significantly in 2021-22, with the population experiencing a net gain of 171,000 people according to the Australian Bureau of Statistics. This is in marked contrast to the net loss of 85,000 people in 2020-21 financial year.
All the indications are that migration into Australia is going to continue to increase at a significant rate, meaning the high demand for rental properties is expected to carry on for the foreseeable future.
In particular, it is anticipated that there will be a shortage of multi-density dwellings (including apartments) being made available to rent, according to the National Housing Finance and Investment Corporation (NHFIC). This is because the expected number of new properties that will come online — 57,000 a year over the next five years — simply won’t meet the increased demand brought on by a growth in the number of migrant coming into the country who are seeking accommodation to rent.
In addition, the NHFIC ‘State of the Nation’s Housing 2022-23’ report suggests that over the next decade 1.8 million households will be formed in Australia, but a lack of supply will at the same time mean that there is expected to be an insufficient supply of suitable dwellings to meet this need.
Why you should invest in rental property in 2023
In summary, a shortage of supply and a significant increase in migration into Australia will lead to a continued shortage of all types of property available to rent across the country.
For investors, this means that this is an ideal time to buy an investment property, as low vacancy rates, high demand and significant shortfalls in supply mean that both uptake and rental rates will remain high.
If you are considering buying an investment property, and want to find out more about the current state of the rental market in Australia, talk to Power of Property today.
Book a free personal strategy session with Michael Lawton and Danielle Charlton to discover the options that are open to you, and how you can begin your property investment journey today.