Cotality economist Kaytlin Ezzy says while the market is stabilising in some areas, others appear to show early signs of a re-acceleration in rental costs.
00:00Yeah, so looking at the pace of growth in rental markets, we have seen a continued easing in that rate of growth, and that has largely happened in the absence of any supply response.
00:13So vacancy rates are still holding really quite low at about 1.6% nationally.
00:18And so instead, that easing in the pace of growth has been driven by demand factors.
00:22So we've seen the net overseas migration has continued to normalise, and that has reduced rental demand.
00:29And then we've also seen a bit of an uptick in the average household size, so people renting out that extra spare room, staying home with mum and dad that little bit longer, as a way of handling the additional rental burdens that we've seen with the increase in rents over the past couple of years.
00:45And this comes after, as you say, years of solid rental gains, doesn't it?
00:49Can you give us a sense, remind us how much rents have gone up over the last few years?
00:53Yeah, so over the last five years, we've seen rents increase by about 43% nationally.
01:00That's ranged from about 19% in Canberra up to almost 70% in Perth.
01:07At the national level, that increase is equivalent to an increase of about $199 per week, or about $10,000 extra per year spent on rents.
01:17So what's happening in Hobart and in Darwin, Caitlin?
01:21Rental costs there have risen by the most nationally.
01:25Why are those two markets seeing such an acceleration?
01:29Yeah, over the past year, Hobart and Darwin have seen rates up by about 5%, 6%.
01:33They have, over the past few years, seen a much weaker rental growth compared to your larger and mid-sized capitals.
01:42In fact, in some cases, saw rents go backwards.
01:45So they are playing a little bit of catch-up at the moment, seeing that stronger rate of growth compared to the larger and mid-sized capital cities.
01:52As you say, there is still this big imbalance in demand and supply of rentals, with fewer rental listings than last year nationally.
02:01So it's more surprising that rental price rises are slowing, I guess.
02:06Yeah, and I think that does come back to the affordability factor.
02:10Obviously, with an extra $200 per week for rental burdens, we are seeing households change the way that they're forming so that they can handle that additional rental burden.
02:21So making larger households on average, which overall decreases rental demand.
02:28Also, are renters now in a better position, rather, to negotiate with their landlords?
02:34What's been happening with state tenancy laws?
02:37So it's difficult across the individual states to comment.
02:41But broadly speaking, this latest starter, even though it does show that the pace of growth in rental rents has eased off,
02:51they aren't going backwards.
02:52They are still continuing to rise, just at a more normalised pace.
02:57So renters, unfortunately, probably don't have that ability to negotiate, say, a rent decrease quite yet.
03:03So overall then, Caitlin, is this a reset of the rental market that we're seeing now, or do you anticipate that rents will take off again?
03:11So it's difficult to say.
03:14Broadly speaking, we are seeing some capitals fall back in line with their pre-COVID sort of average rate of increase,
03:19so Sydney, Melbourne, Canberra, for example.
03:23But we are seeing some early signs that some markets, like, say, Brisbane, for example,
03:28or high-end unit markets across Sydney are starting to see the first early signs of a bit of a re-acceleration.
03:35So their 12-month growth, say, across Brisbane went from 3.5% over the 12 months to May, up to 3.8% over the 12 months to June.
03:46So very early days, but we could be starting to see a little bit of an uptick in that pace of growth, of course,
03:52for a few select markets.
03:54OK.
03:54And finally, are these current lower rental price rises a precursor of good news for homeowners?
03:59Do they add to the case for a rate cut next month?
04:04Yeah, so with the pace of rental growth normalising, it does add a bit of extra weight to the case for a rate cut.
04:13It is a fairly large portion of the CPI basket.
04:16That being said, of course, with that slight uptick in a few markets over the past month or so,
04:23it does raise maybe some concerns as to whether we will continue to see rents decrease from here in the early days.
04:34So it's definitely something to watch, but we would expect that the pace of growth will continue to ease.
