Persistent Challenge: Rent Prices Expected to Remain Elevated for an Extended Period

 

Persistent Challenge: Rent Prices Expected to Remain Elevated for an Extended Period

Rental prices are expected to continue their upward trajectory throughout the remainder of this year, and prospects for relief in 2024 are bleak. Property experts assert that robust population growth is outpacing the supply of new housing units and homes, contributing to this trend.

Data from CoreLogic reveals that in Melbourne, house rents surged by nearly 12 percent in the year leading up to August 31, while unit rents in the city saw an almost 15 percent increase. Sydney followed suit with house rents rising by almost 9 percent during the same period, while unit rents in the harbor city soared by almost 17 percent.

This substantial increase in rental costs has resulted in a greater proportion of median household income being allocated towards servicing rents. CoreLogic data from June this year indicates that this figure reached nearly 31 percent, marking the highest level since June 2014.

Andrew Wilson, Chief Economist at My Housing Market, acknowledges that this situation seems intractable. He emphasizes that the only limitations on rent increases are the financial capabilities of renters themselves. Although recent government initiatives at both the federal and state levels aim to boost housing supply, including rental properties, Wilson suggests that these measures will take time to yield results, and even then, the projected number of new constructions falls far short of meeting the demand.

According to Wilson, "High rents are something we are going to have to live with, and governments can only really help those renters who are marginalized."

Angie Zigomanis, Head of Data and Insights at Quantify Strategic Insights, attributes the rising rents to the basic principle of supply and demand. He points to the significant role played by the return of net overseas migration in driving rental demand, with net immigration for the year up to June 30 expected to approach half a million when official figures are released.

Zigomanis contends that apartment construction remains relatively weak and advocates for more apartment developments, particularly in close proximity to major urban centers, to alleviate the housing shortage.

Louis Christopher, the founder of SQM Research, asserts that to accommodate Australia's population growth, approximately 260,000 dwellings should be completed in the current calendar year. However, the country is on track to construct only about 160,000, which suggests that rents will likely continue their upward trajectory, possibly rising by 2 to 4 percent during the final three months of the year.

Eliza Owen, the Head of Research at CoreLogic, offers a somewhat more optimistic perspective for renters. She notes that over the three months leading up to August 31, there have been some minor rent decreases, primarily in the more expensive suburbs of Sydney and Melbourne.

Owen identifies factors that could alleviate the rental pressure, including more students sharing accommodations and renters seeking more affordable areas as rents rise. She anticipates that the annual pace of rent growth will ease, though challenges related to rental affordability are likely to persist.

CoreLogic has identified suburbs within 20 kilometers of the central areas of Sydney and Melbourne with the lowest rents. In Melbourne, these suburbs include Deer Park, Albanvale, Broadmeadows, Laverton, and Albion, with rental houses priced under $444 a week. The most affordable rental units in Melbourne can be found in Albion, Deer Park, St Albans, Broadmeadows, and Thomastown, priced under $421.

In Sydney, the cheapest suburbs for house rentals include Auburn, Regents Park, Granville, Berala, and South Granville, with rentals under $689 a week. For rental units, Wiley Park, Punchbowl, Lakemba, Regents Park, and Roselands offer the lowest rates, all priced under $525.

It's important to note that the advice provided in this article is of a general nature and not intended to influence investment decisions or financial product choices. Readers are encouraged to seek their own professional advice tailored to their individual circumstances before making any financial decisions.