New trends in the Australian real estate market

Data released by the Australian Bureau of Statistics last week showed overseas and student arrivals continue to rebound, pointing to ongoing increasing rental demand in the capital cities. 

At a national level, rental price growth steadied over the December quarter after hitting record quarterly growth in September, although advertised prices still rose by 6.7% over the 2022 calendar year and markets remain tight. In the capital cities, rents rose 10% in the past year, while regional rents rose 7.1%. 
 

Demand for rental stock remains heightened and supply continues to be limited. Total rental listings remain at their lowest level since mid-2003. 

Pressure shifts to the capital cities

Prop Track’s latest rental market report showed that with supply remaining tight and demand high, capital city rents rose at a faster pace than regional rents in the December quarter for the first time since September 2020. 

Throughout the Covid period, regional rentals surged in popularity, with many opting to take advantage of the increased residential choice brought by hybrid and remote work trends. This placed enormous strain on rental markets in the regions.  

In the regions, rental supply remains tight but there has been some reprieve. In December, total regional rental listings were 9.8% higher year-on-year, the largest year-on-year increase since June 2014.​ 

However, with the pandemic in the rear-view mirror and borders having reopened, pressure has shifted to the capital cities – particularly the larger ones – and inner-city rental markets have tightened over the past year. In the capitals, total rental listings were 26.3% lower year-on-year in December and are now at the lowest point since February 2003.

While there are several factors that have exacerbated the current tight rental market conditions, increased household formation was an important factor.  Rental demand for smaller dwellings increased in part due to household sizes shrinking thanks to remote work trends and Covid restrictions. Smaller household sizes are also part of a generational trend, with the population ageing and the nature of households and families changing. 

Rebounding international arrivals are likely to add further pressure, particularly in the major capitals, where we know migrants are most likely to rent – and predominantly in the inner and middle ring suburbs of Sydney and Melbourne.  

With the tight supply of rental stock in the major capital cities persisting, this is likely to see continued upward pressure on the cost of renting and result in tough conditions for renters. 

Throughout the Covid period, regional rentals surged in popularity, with many opting to take advantage of the increased residential choice brought by hybrid and remote work trends. This placed enormous strain on rental markets in the regions.

Net permanent and long-term arrivals continue to march higher 

Net permanent and long-term arrivals are a timely proxy for migration trends, and arrivals are a strong leading indicator for long-term population growth.

Data released by the ABS last week showed a big turnaround from Covid lows, with net permanent arrivals rebounding to pre-pandemic levels and on track to well outpace Treasury forecasts. 

Population growth is a key contributor to the demand profile in both the market to rent and buy.

With the current strong demand for rental accommodation likely to grow and without a meaningful increase in rental supply on horizon, it doesn’t look like price pressures will ease in the capital cities anytime soon. 

This is particularly the case if renting households remain smaller as changing work, lifestyle and family formation trends impact the make-up of households. However, the increased cost of renting may push some back to larger households via shared living arrangements. 

In tandem, overseas searches to rent have risen strongly throughout the past year. They increased the most in New South Wales, with searches to rent from overseas almost doubling, up 71% year-on-year, closely followed by a 59% year-on-year increase in overseas searches to rent in Victoria.

In every state, the most-searched suburb from overseas searches to rent on realestate.com.au is the inner city of each respective capital city. 

Students are also a large chunk of the long-term visa mix. The latest arrivals data by visa group continues to show a surge in net student arrivals, which will continue to add to already strong demand to rent in the cities close to the CBD and major universities.

To learn more about new trends in the Australian real estate market, please book a discovery call with our team of experts at Investfox. Or you can contact us at 0481 611 220