Rents have increased at a booming rate since the lows reached during COVID-19 lockdowns, putting pressure on tenants who decided to move when housing costs were more affordable.
Economists warn of the need for more housing construction to increase the supply of properties and take pressure off rents.
Unit asking rental prices have soared by 48.9 per cent in Sydney from their post-March 2020 trough, and 48.6 per cent in Melbourne, Domain data shows, and have reached a weekly median of $700 and $550 respectively.
The rise was even steeper in Brisbane (53.2 per cent) and Perth (71.9 per cent), while across the combined capitals, unit rents soared 46.3 per cent from March 2020 to reach a median $620 a week.
House rents also jumped higher in Sydney (42.9 per cent), Melbourne (32.6 per cent), Brisbane (53.2 per cent), Perth (71.9 per cent) and the combined capitals (46.3 per cent).
“A lot of Australian rents didn’t go anywhere for about a decade up to 2020,” Ray White chief economist Nerida Conisbee said.
The cost of rent has soared over the past four years.Credit: Flavio Brancaleone
Experts pointed to several reasons for the huge increase in rents over the past four years, notably a lack of supply of properties, as well as the move out of share houses into smaller households with spare rooms used as home offices. Others have pointed to a decline in the construction of public housing over the long term.
“Fundamentally, there are not enough homes for people to live in,” Conisbee said. “We are really stuck at the moment, we’ve got construction problems, we’re lacking the money to get these homes built and governments are so indebted after COVID there are not many levers they can pull.”
She predicted the federal government would include more funding for built-to-rent projects to counter dwindling private investment in this week’s budget.
“But it’s just not really a solution that will lead to the 1.2 million homes that they’re hoping to see over the next five years,” she said.
Conisbee said that although high interest rates would eventually reduce inflation, the price hikes had pushed many investors out of the market and put further strain on the cost of housing.
“Rents push up, inflation pushes up, rates push up and then people won’t invest in property, so then we continue to see rents go up – it is a circular problem that we just can’t get out of very quickly,” Conisbee said.
She said a “quick solution” would be to give investors more incentive to enter the market, but that there were political ramifications with that.
Behavioural hangovers from the pandemic were also contributing to booming rents.
Tenants are under pressure from rising rents.Credit: Chris Hopkins
AMP chief economist Shane Oliver said the number of people per household declined during the pandemic, as people opted for their own rentals rather than living in a share house.
“It led to people not wanting to share, but they could also afford not to share,” Oliver said.
This caused a “spreading out” of people who would usually live together, he said, taking up more of the available properties than was the case pre-2020.
“The after-effect of that banged into population growth, when migration and student arrivals started again,” he said.
“Odds are we will see people sharing, moving back with parents or staying at home for longer.”
If people did start to form larger households, it could take some of the heat out of the rental market, Oliver said, but prices would still not fall, just stabilise.
“To get a fall, you need more supply,” he said. “We’ve got to go back to a unit-building boom.
“In the period between 2016 and 2020 we were building a large number of units – people were regularly doing crane counts in the major cities.”
He said during that time, rents were either holding steady or seeing only minimal increases, as most of the new units became rentals.
Conisbee said there was definitely an “expansion into space” during the pandemic, but that people tended to favour houses over units at that time.
“Student apartment locations emptied out, and we had extremely high vacancies in places like Melbourne CBD and Carlton,” she said.
Conisbee said now that students were back at tertiary institutions and migration had picked up, renters were forced to rethink their living arrangements to bring down costs.
“We kind of have to go back to where we were pre-COVID and have people move back in together – which is happening – we have seen a rise again in average household size because obviously the quickest way to cut your rent is to find someone to share your house,” she said.
clarification
A previous version of this story referred to how far rents have risen since March 2020. In fact the figures measure how far rents have risen since their post-March 2020 trough in each city. The error was introduced in production.