In summary:
New figures from CoreLogic show that nationwide rental growth is slowing for the first time in three years.
In the twelve months up to July, rents rose by only 0.1 percent.
What happens next?
Real estate analysts say the numbers could be a sign that renters are in for a treat after years of rising prices.
Australia’s rental market could be on the verge of a downturn as prices stagnate for the first time in four years, property analysts say.
The latest figures from CoreLogic show that national rental growth rose by an average of just 0.1 percent in the 12 months to July, compared to highs of almost 40 percent at the peak.
It is the first positive sign for Australian renters since 2020, when rental prices began to rise and demand reached record highs.
Tom Lawless, senior research director at CoreLogic, said this was a strong sign that the Australian rental market was starting to cool down.
“Although the pace of growth is slowing, it is doing so from an extremely high level,” he said.
“Two years ago, our national rental index was rising by 9.5 percent annually, a year ago that increase slowed to 8.6 percent and over the last 12 months to 7.8 percent.
“On a more precise monthly basis, the 0.1 percent increase in rents through July was the smallest increase we have seen since August 2020, when the rental market went through a lull in the early months of the pandemic.”
Michael Fotheringham of the Australian Housing and Urban Research Institute agreed that there is still a long way to go before rents fall.
“In general, there is a slowdown in rental price growth. But that does not mean that there is no growth, nor that rental prices are falling,” he said.
“They just rise less quickly.
“This is of course positive for many tenants and generally a sign that the situation is stabilizing.”
Nationally, rents rose by an average of 7.8 percent in the year to July, compared to a peak of 8.6 percent in April.
Officials at the Reserve Bank of Australia said they were “very conscious” of the ongoing pressure on rents amid the housing shortage.
RBA Governor Michele Bullock and others appeared before the Economic Affairs Committee at Parliament House in Canberra on Friday.
Sarah Hunter, RBA deputy economic governor, told the hearing: “The pace of growth in market rents has slowed in some markets in recent months, so it will take some time for this to have an impact on rental stock in recent times.”
She pointed out that tenants’ leases would be increased at annual renewal to match or approach the “market rate”.
“It’s a really big challenge. And unfortunately it takes a while for the housing supply to become available. You can’t build new houses overnight,” she said.
“Sadly, the problem is unlikely to resolve itself in the near future.”
Peter Koulizos of the Australian Centre for Housing Research at the University of Adelaide agreed that, at first glance, the figures were good news.
“This is a very good sign for existing and potential tenants,” he said.
“It won’t be that difficult to get a rental apartment unless you are looking for social housing or affordable housing.
“We know from discussions with property managers that the pressure on rents is not as great for properties that attract middle- to high-income tenants.”
What is the cause of the slowdown?
Mr Koulizos said new properties on the market were easing the crushing demand that has plagued the Australian property market since the pandemic.
“Rental growth is slowing for one main reason – supply,” he said.
“The supply of new rental properties has increased as builders and developers return to normality following COVID restrictions.
“Another indication is that lending to investors has increased and is now well above the 10-year average.”
According to Lawless, slowing immigration from abroad has also led to a decline in demand for rental properties, as has the decision of some Australians to live in shared accommodation.
“Given the strong pressure on rent affordability, it is likely that more renter households will seek to maximise their tenancies in order to spread the cost of rent across a larger number of tenants,” he said.
Mr Lawless said he believed the downward trend would continue.
“The recent pace of rent growth has been extreme but unsustainable,” he said.
“Tenants generally do not have much flexibility in paying higher rent.
“With more than 30 percent of average household income and average rent spent on rental payments, it is difficult to imagine that rental growth will be anywhere near the level of recent years.”
Dr Fotheringham said he believed the slowdown could be due to the Reserve Bank’s policy to reduce inflation, but it was also likely that the Australian rental market had finally reached capacity.
“Rents have been rising much faster than wages for decades, but most sharply in the last two years,” he said.
“Frankly, the market may have reached a point where it can’t support any more growth, people just can’t stretch anymore and prices have peaked.”
Dr Fotheringham said while it was reassuring to see the market slowing down, it was important to remember that regional areas were particularly struggling with high prices.
“The slowdown in growth has occurred mainly in the major capital cities, while growth in the regions is still quite strong,” he said.
“Rental prices are still rising and incomes in the regions are on average lower than in the big cities.”
“This is now a growing problem for our regional communities – it is not just a problem of big cities.”
