As rents in Australia continue to skyrocket at rates not seen in well over 30 years, the big question remains: How much longer can they keep rising so rapidly?
According to the latest figures from property data provider SQM Research, asking rents on a capital city average basis are up 24.6 per cent over the last 12 months, with rents nationally up 18 per cent.
Of all the nation’s capitals, they are rising fastest in Sydney up 30.1 per cent over the past year, and performing the most poorly in Darwin, where they have risen by 5.3 per cent over the same period.
Depending on which metric for asking rents you favour, Australia has seen some of the largest rent increases in the world over the past 18 months. But large residential rent increases more broadly are not an outcome that is unique to Australia. Throughout most of the developed world, home rents have skyrocketed as pandemic-driven demand and government stimulus combined in a perfect storm.
It is, however, worth noting that pandemic-driven demand alone was not enough to drive outsized rent increases in a multitude of countries across the developing world, even if their economies performed relatively strongly. From Brazil to Bangkok, rent increases in some nations since the pandemic began ranged from flat to moderate.
To get something of an idea of where Australia’s rental market could be going in 2023, we’ll be looking at a few examples from other wealthy nations.
The American trend
According to property data provider Apartment List, asking rents in the United States have fallen for four consecutive months and at the fastest rate in at least the past five years. While falling rents at this time of year are a seasonal norm, it is the size of fall that makes this trend worth keeping an eye on.
On the other hand, a recent Wall Street Journal analysis noted that rent increases for existing tenants were going in the opposite direction, with growth in this subset of the rental market remaining strong.
While asking rents are likely to surge higher in a normal seasonal move in the new year, the era of outsized increases in home rents may be drawing to a close.
Our closest neighbour
Across the Tasman in New Zealand, rents are taking a very different path to those in Australia. In Auckland, by far the largest and most populous city in New Zealand, rents are flat over the 12 months to the end of November 2022.
New Zealand’s cash rate has risen from 0.25 per cent to 4.25 per cent since rate rises began in October 2021, and the Reserve Bank of New Zealand expects a peak of 5.5 per cent, yet landlords haven’t been able to pass on any of the rise in their costs to tenants.
In New Zealand’s capital and third biggest city Wellington, rents are down 3.2 per cent in the year to November 2022.
But outside of some of New Zealand’s large cities, rents in its regional areas are rising strongly, with rents nationally, excluding Auckland, up 6.8 per cent in the year to November 2022. This is the opposite of what we are seeing in Australia, where the most populous cities are seeing the largest rent increases and regional areas are seeing rental increases moderate or even flat out reverse.
Early signs of weakening in Australia?
While rents are rising strongly across the overwhelming majority of the country, there are some notable examples that buck the trend.
In the early months of the pandemic, when many city dwellers looked for a sea-change or tree-change to get away from lockdowns and various Covid restrictions, demand for rental accommodation in regional areas surged to all time highs. At the same time, reticence among Australians in the regions to undergo the traditional internal migration toward the capital cities also added demand for rental accommodation.
But now, in some of the same parts of the country which saw such explosive demand, rents are rising far less rapidly than in the capital cities or even reversing.
For example, on the New South Wales south coast rents are down 5.6 per cent over the past 12 months, and the trend down remains despite strong seasonal demand.
On the NSW North Coast, rents peaked in February 2022, and recent data has seen asking rents continue to fall.
Running on empty
The Albanese government’s push to raise net overseas migration to what some experts believe could be the highest level ever in the coming months will further amplify demand and arguably key upward pressure on heavily impacted areas for longer than elsewhere.
While it’s likely that rents will continue to rise rapidly in aggregate for the foreseeable future, particularly in areas popular with new arrivals, the data from overseas and some of the nation’s regional areas shows that outsized increases can’t continue forever.
But ultimately, as data from selected markets overseas illustrates, eventually tenants can’t pay anymore and seek alternative living arrangements, putting downward pressure on demand for rental accommodation.
At what point a majority of Australia’s rental markets will reach this equilibrium remains unclear. With pandemic-driven demand, rapidly rising immigration and hundreds of thousands of additional households in net terms, it may be quite some time before a balance is found.
Tarric Brooker is a freelance journalist and social commentator | @AvidCommentator