Australia’s rental market has been making headlines due to a lack of supply that’s seen the national vacancy rate tighten to a near-record low of 1.1% over the March quarter, according to CoreLogic.
This, in turn, has seen asking rents accelerate to historical highs across the combined capitals and regions, according to Domain’s latest rental report.
This shortage has been brought about by a combination of factors, including rising construction costs, rising interest rates and a growing population.
Building approvals plummet
Higher interest rates and soaring construction costs contributed to a significant 31.3% annual decline in building approvals in February 2023, according to the most recent data from the Australian Bureau of Statistics (see chart).
ABS head of construction statistics Daniel Rossi said private sector dwellings excluding house approvals were at their lowest level in more than a decade.
In fact, Australia is on track to experience the biggest two-year population surge in its history, with Treasury recently forecasting 650,000 more migrants would arrive than previously expected this financial year and next.
With population growth expected to exceed housing construction, the National Housing Finance and Investment Corporation, in its 2022-23 State of the Nation’s Housing Report, predicted a shortfall of 106,300 homes over the five years to 2027.
NHFIC chief executive Nathan Dal Bon said the rapid return of overseas migration after the pandemic, as well as decade-high construction costs and interest rates, were exacerbating an already tight rental market.
“NHFIC analysis shows housing affordability and supply are likely to remain challenging for some time, underscoring the need for a holistic approach to mitigating the housing pressures Australians are facing,” he said.
Impact on home prices
The housing shortage won’t just affect the rental market. It will likely also put upward pressure on home prices in the coming years, as demand outweighs supply.
You can already see the beginnings of this playing out in the current market, with CoreLogic’s national home value index growing 0.6% in March from February, despite high interest rates.
CoreLogic’s research director, Tim Lawless, put the rise down to a combination of factors, including the extremely tight rental conditions and additional demand from overseas migration.
“Although interest rates are high … it’s clear other factors are now placing upwards pressure on home prices,” he said.
“With net overseas migration at record levels and rising, there is a chance more permanent or long-term migrants who can afford to, will skip the rental phase and fast track a home purchase simply because they can’t find rental accommodation.”
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