No relief on the horizon for Australian renters

Written by in Investment on June 22, 2011

The rental market in Australia is tight and as rental rates continue to trend upwards it seems that those renting are looking for different ways to Rent Rate Increase Due To Low Vacancy Raterelieve the impact of rising rental costs.  According to a recent survey conducted by Mortgage Choice, 51% of consumers stated that home ownership is more attractive because of rising rental costs in Australia.  This is surprising given the struggle many are also facing to get onto the property ladder. So for those who will be renting in 2011, is there any relief insight?

We spoke to David Airey, President of the Real Estate Institute of Australia to gain his view on what occurred in the rental market in 2010 and what we can expect for 2011.


Reflecting on 2010

During 2010 vacancy rates remained below equilibrium levels of 3% across most of Australia’s capital cities.   Mr Airey commented “Sydney and Melbourne have continued to remain tight rental markets  with Sydney vacancy rates ranging between 1.1% & 1.4% and Melbourne ranging between 1.5%  & 2.4% quarterly during 2010.”


According to Mr Airey “Low vacancy rates in these major cities are being fuelled by population growth.  Despite the tight market in these capital cities however it is important to note that, when comparing Q4 2010 to Q4 2009, the weekly median rental prices for a 3 bedroom house in Melbourne only grew by 3.1%.” Mr Airey stated “At $330 per week, the median rental price for a 3 bedroom property in Melbourne remained one of the lowest in the country second only to Adelaide and on par with Hobart.”


Vacancy rates have also remained low in cities such as Adelaide, Canberra , Hobart & Darwin recording average vacancy rates across 2010 of 1%, 1.5% , 2.3% & 2.1%  respectively.   Mr Airey explained “Even though the Darwin rental market remains tight it has eased slightly over the past year. As a result we have seen the median price for a 3 bedroom property decline by 4.4% (when comparing Q4 2010 with 2009.) ” David added  “In the other capitals and across the country I expect because of these low vacancy rates, rents will continue to  rise as demand increases and owners try to recover increased costs of ownership due to interest rate rises and local government rate increases.”


Perth has shown higher vacancy rates than most other states averaging 3.8% across 2010.  Mr Airey explained “Perth has always been a market with a higher level of home ownership thus vacancy rates have always been higher than seen in other major cities across Australia.”  Despite higher than average vacancy rates, Perth’s median rental price of $370 (for a 3 bedroom property, in Q4 2010) remains above the national weighted average of $365.80.   Brisbane vacancy rates have also remained higher than most states averaging 3.6% across 2010.


Looking towards the year ahead

According to Mr Airey we are likely to see continued pressure on the rental market across Australia in 2011.  However recent events and other key factors are likely to impact some cities more than others.


Mr Airey advised “In 2011 we will see increasing pressure on demand for rental properties in Sydney and Melbourne due to continued population growth. As a result vacancy rates will continue to remain low and we anticipate rental rates will continue to rise. However given population size and growth in both of these major cities, and low vacancy rates it does seem that Melbourne is one of the most undervalued rental markets in Australia.  As a result the market might experience a correction in the year ahead which may see rental rates rise more sharply than in other states.”


Whilst the Brisbane market has enjoyed higher rental vacancy rates over the past few years, recent environmental disasters are likely to have a significant impact on the market in the short to median term. Mr Airey believes “Cyclone and flood damage will force home owners to search for short term accommodation whilst they repair damaged properties.  Therefore we are likely to see a strain on the Brisbane rental market across the next 3 – 6 months. However after this time we anticipate that vacancy rates will return to the normal levels we have seen in Brisbane over the past few years.”