What’s really going on in the rental market?
Whether you’re a landlord, a tenant or just a property market enthusiast, you’re probably aware that the rental market has been a pretty hot topic this year.
First it made the headlines as part of a swathe of news regarding COVID-19, with landlords and tenants urged to work together to navigate rent payments during a crisis. More recently there’s been a lot of discussion about whether rental prices are falling or rising across the country.
So, let’s take a look at what’s really going on in the rental market as we near the end of 2020.
Good shape, all things considered
Let’s be very clear from the outset, Australia’s rental market is in good shape considering what 2020 has served up so far.
By and large tenants and landlords have successfully navigated the worst of the coronavirus crisis, working together to negotiate rent reductions or rent pauses when required.
Now, as all states re-emerge from lockdowns and border closures, attention is turning to rental prices and vacancy rates, and there are some really interesting trends emerging.
Vacancy rates are an indicator of how much demand there is for rental properties. As would be expected, this varies from state to state, city to city, and even between cities and regional areas within the same state or territory.
So let’s take a quick look at what’s occurring.
As a rule of thumb, a vacancy rate of around 2-3 per cent indicates rental property supply is meeting demand.
Despite COVID-19, Australia currently has a national vacancy rate of 2 per cent, according to the latest figures from SQM research.
That figure is slightly lower than last year when the vacancy rate sat at 2.1 per cent.
Across the capitals in September, the vacancy rates generally declined, with the exception of Canberra, which rose only slightly and was low to begin with, and Melbourne, which was subject to lockdown.
Vacancy rates September (source: SQM Research)
- Sydney – 3.5 per cent (no change from August)
- Melbourne – 3.8 per cent (up 0.4 per cent on August)
- Brisbane – 2 per cent (down 0.1 per cent on August)
- Perth – 0.9 per cent (down 0.2 per cent on August)
- Adelaide – 0.8 per cent (down 0.1 per cent on August)
- Canberra – 0.9 per cent (up 0.1 per cent on August)
- Darwin – 0.7 per cent (no change from August)
- Hobart – 0.6 per cent (0.6 per cent (down 0.1 per cent on August)
Meanwhile, SQM Research also noted an interesting trend which is occurring. CBD vacancy rates tend to be higher than the suburbs surrounding the city, while regional vacancy rates are declining significantly.
In many areas this is caused by people exiting the CBD in search of more affordable rents in suburbs outside the city ring or even in regional areas.
In fact, SQM Research notes many regional areas are now reporting rates below 1 per cent, which indicates little to no vacancy.
So, let’s now turn attention to prices.
Rental prices often mirror the demand for properties as illustrated by the vacancy rate, so there’s a correlation between declining vacancy rates and higher rental prices, and vice versa.
There’s also a difference between houses and units, often due to the fact units tend to be more concentrated in the CBD.
SQM Research found nationally both houses and units had risen compared to September last year, with houses up 4.8 per cent, and units up 1.7 per cent.
Rental price trends by capital (Source: SQM Research)
- Sydney – Houses down 8.9 per cent on September 2019, units down 8.9 per cent
- Melbourne – Houses down 2.1 per cent on 2019, units down 5.1 per cent
- Brisbane – Houses up 1.1 per cent on 2019, units down 0.6 per cent
- Perth – Houses up 6.8 per cent on 2019, units up 7.6 per cent
- Adelaide – Houses up 5.1 per cent on 2019, units up 1.9 per cent
- Canberra – Houses up 1.4 per cent on 2019, units up 3.8 per cent
- Darwin – Houses up 1.5 per cent on 2019, units down 3.3 per cent
- Hobart – Houses up 4.4 per cent on 2019, units down 5.2 per cent
So, what does that all mean?
Basically, this latest data indicates the rental market is holding up, but there are some areas which have been impacted more heavily by the events of 2020 than others.
In the worst case scenarios, landlords have dropped their rents by up to 10 per cent due to rising vacancy rates particularly in Sydney and Melbourne’s CBD. But let’s not forget, Sydney and Melbourne’s prices were high to begin with, having enjoyed significant growth over recent years.
Elsewhere things tend to be quite positive, and that’s particularly the case in regional areas.
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