Australia’s Tight Rental Market Forces Tenants to Make Tough Choices

By Stella Qiu

SYDNEY – Australia’s booming rental housing market, driven by record levels of migration and a persistent shortage in supply, appears to be approaching a tipping point for affordability as tenants struggle with escalating living costs.

Vacancy rates across the nation are at historic lows, and prices have surged by 30% over the past three years, leaving renters like Lara Weeks, an office worker in Sydney, in difficult predicaments. After her landlord opted to sell the apartment she had called home for 18 years, Weeks and her cat were forced to move into a one-bedroom unit further from the city center that costs 22% more than her previous place.

"It’s unfortunate that I can’t remain in the area for a similar price," she lamented.

Rents have emerged as a significant contributor to inflation, which stood at an annual rate of 5.4% in the September quarter, significantly above the central banks’ goal of 2% to 3%. This situation could prompt further interest rate increases as early as next week. Such increases would elevate the variable mortgage rates for most Australian landlords, who are typically individual investors rather than large corporations. This, in turn, pressures landlords to raise rents further, forcing tenants into difficult choices.

"We’re already witnessing those in houses move to units, and the next logical step is for those units to become too expensive, prompting a shift to share houses," explained Cameron Kusher, chief economist at PropTrack.

AT THE EDGE OF A CRISIS

Many tenants, particularly in Sydney, have already found themselves unable to afford houses. Data from PropTrack indicates that national house rents remained flat at A$550 per week (approximately A$2,380 per month) in the September quarter, while apartment rents experienced a 4% increase during the quarter—double the growth rate observed in the previous quarter—leading to an average of A$520 per week.

Overall, rental prices across Australia’s market rose by 7.6% in the third quarter compared to the previous year, marking the largest spike since 2009 and mirroring trends seen in other countries experiencing similar surges in rental costs. Reserve Bank of Australia Governor Michele Bullock stated that rent inflation could peak at an annual rate of 10% in the coming quarters before beginning to ease.

Real estate agents have noted early signs of a slowdown in certain regions. "Compared to the start of this year, things are significantly quieter now," said Christian Postiglione, an agent in Sydney’s eastern suburbs. "Earlier in the year, we would see 40 to 50 groups at inspections, but now the volume has decreased considerably."

AFFORDABILITY UNDER PRESSURE

The rise in rents has far surpassed the decline seen at the start of the COVID-19 pandemic when Australia’s borders were closed and there was a net outflow of residents. By the end of June, net migration surged to a record 500,000 individuals.

The housing supply has struggled to keep pace, hampered by high borrowing costs, labor shortages, and heightened raw material prices. Estimates suggest that up to 70,000 new rental properties are necessary to rebalance the market.

Nationwide, the proportion of income needed to cover new rents reached a record 31.4% in the June quarter, according to recent housing affordability reports. For low-income households, this figure stood at 52% as of April, while wage increases have failed to keep up with rising rent prices.

Tim Beattie, a 62-year-old former soldier, recounted how he was priced out of the rental market in Western Australia and had to leave his job in community services. He now resides with his daughter in Adelaide and is on the lookout for a room in a shared house that costs no more than A$200 per week.

"There used to be a middle class, but that’s now a thing of the past," Beattie remarked.