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Let’s look behind the headlines to see what the key market drivers are for 2023 and beyond
Australia’s rental property market remains buoyed by rising demand and tightening supply, with the impact for investors being substantial. Rents across the nation have soared by 10.1% in the year leading up to March 2023, and that’s just the beginning.
When you look at the numbers, we see vacancy rates constricting tightly, shrinking to a national average of 1.1%. For context, this is significantly lower than the decade-long average of 3%. The implications for property owners are far-reaching, with this highlighting an ongoing competitive landscape for potential renters and a high-yielding one for property owners.
Following a recent boom in a number of regional locations, many areas in major capitals have seen a strong uplift, post pandemic.
The performances across Australia's property markets are diverse, each unfolding its unique story. The capital cities’ rental markets demonstrate robust strength, with combined capitals escalating 11.5% year on year to March 2023. However, the regional areas, despite enjoying a stronger upswing in 2021, are losing momentum, with a combined increase of 6.6%.
At the top of the capital city rental market hierarchy sits Sydney, maintaining its prestige as the most expensive, with typical house rentals commanding $747 per week and units $648 per week. Contrastingly, Adelaide provides a haven for those seeking affordability in unit rentals, averaging $443 per week. Melbourne secures its niche as the capital with the most budget-friendly house rents, pegged at $545 per week.
Looking to the future, it's hard to envision a halt to these rising rents.
Immigration, a key driving factor, saw a substantial net inflow of 304,000 across the year to September 2022, with expectations of a further annual influx of 325,000 over the next two years. Alarmingly, new house approvals have dipped below the decade-long average, signaling a long-term supply deficit against a backdrop of surging demand, likely to exert additional upward pressure on rental prices.
Approximately 85% of these incoming migrants are expected to enter the rental market, potentially causing an acceleration in demand. Interestingly, this trend may have a ripple effect, potentially speeding up transitions into home ownership due to escalating rents. Traditionally, about 87% of Australia's migrants opt for life in capital cities, compared to 62% of Australian-born residents. This preference for urban living is likely to continue, with Sydney and Melbourne predicted to absorb around two-thirds of all immigrants.
A two year immigration forecast of 325,000 will continue to drive rental demand
However, amid this bustling migration activity, we're observing an interesting internal migration pattern. Driven by lifestyle and ongoing flexible work opportunities, the popular destinations of Gold Coast and Sunshine Coast are gradually ceding ground to the more affordable Logan and Beaudesert districts in SE Queensland.
In conclusion, the rental landscape in 2023 is dynamic and evolving, with implications that extend well into the future. As property investors and anyone considering getting started look to navigate these shifts, it's critical to stay informed and responsive to ensure sustainable property investment success.
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