Australia Grapples with Unprecedented Rental Squeeze: Melbourne Hits Near-Record Low Vacancy

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Australia, a vast nation-continent, is facing an acute rental crisis with Melbourne reaching one of its lowest-ever vacancy rates at just 1.41% in July, according to recent reports by PropTrack. This puts tremendous pressure on renters, escalating rental prices, and increasing demands for affordable housing.

Nathan Mawby from PropTrack highlighted that Melbourne’s vacancy rate has seen the most significant year-on-year fall, a drop of 0.82 percentage points. This is alarmingly below the 3% rate experts label as a tight rental market. “We’re definitely very close to the lowest vacancy rate we have ever seen in Melbourne,” noted PropTrack economist Anne Flaherty. She further warned, “the vacancy rate is likely to remain extremely low for the next 12 months.”

Christian Edwards echoed similar concerns, referencing Flaherty’s analysis which showcased that the national vacancy rate dipped in July to a paltry 1.43%. With Sydney and Melbourne witnessing deteriorating rental conditions, and Adelaide and Perth battling with a vacancy rate below 1%, the rental scenario across Australia seems to be bleak for the foreseeable future.

Both Mawby and Edwards cited statistics and insights from PropTrack. The data suggests that Melbourne’s typical house asking rent increased by $40 (8.7%) in the past year, setting it at $500 weekly. Meanwhile, units in Melbourne cost tenants about $70 more per week than a year ago, marking an extraordinary 17.1% jump.

Edwards further stated that the current rental market reveals how “the collision of surging physical demand and insufficient supply is whacking the national housing sector.” Westpac’s August Housing Pulse release substantiated these observations, suggesting the rental crunch has further to run, with the addition of new supply to the rental market seeming unlikely in the near future.

An interesting trend highlighted by Flaherty pointed to a slowdown in the shift towards regional living, a trend that had gained momentum during the pandemic. “While vacancy rates in regional areas fell over July, they remain above the levels seen 12 months ago in every state,” she emphasized.

Westpac delved into the impact on rental returns, observing that rental yields have surpassed dwelling price growth. Yields on units have grown from roughly 4% to 4.8%, the highest since the early 2000s. However, for many investors, capital gains remain the primary focus over rental returns.

As Australia navigates this unprecedented rental crunch, both renters and property owners will closely watch for potential shifts in the market and government interventions.

References:

Nathan Mawby, “Rental crisis: Melbourne ‘very close to lowest vacancy rate ever’ — PropTrack.” ↩ https://www.realestate.com.au/news/rental-crisis-melbourne-very-close-to-lowest-vacancy-rate-ever-proptrack/ 

Christian Edwards, “Property: An Australian rental squeeze?” https://stockhead.com.au/news/property-an-australian-rental-squeeze-not-yet-more-like-a-group-hug-in-a-few-months/