According to the Rental Value index published by CoreLogic, rents all around Australia have increased at the rate that is the most it has been in at least 15 years.
In the latter half of 2022 and the first few months of 2023, annual rent increases (which are computed monthly) surpassed 10%. When rents climbed rapidly the last time, in 2007, it was amid the global financial crisis, and the top annual rent increases at that time reached 9.7%.
However, the percentage of a household’s income spent on housing today is significantly higher than in 2007. The CPI rent index in March 2021, when the current wave of rental price hikes first got underway, was 55% more than it had been in June 2005, the point that corresponds to the equivalent position before the peak in 2008.
“These increases today come on top of an already very significant cost level,” says Dr Michael Fotheringham, the managing director at the Australian Housing and Urban Research Institute. “These increases today come on top of an already very significant cost level.”
Most of the rental value index’s growth over the past ten years—29%—has occurred since March 2020, accounting for 40% of the total growth.
Maiy Azize, a spokesperson for the Everybody’s Home campaign to fix the housing crisis, is in agreement that the problem is not simply the velocity of expansion but that it is coming off of a high base. She believes that this is the root of the issue.
“A 10% increase in one year is bad—nobody wants to see the rent go up—but the problem is when people’s rents are going up consistently, every single year, in large amounts,” adds Azize. “A 10% increase in one year is bad.”
According to the rental value index, during the course of the last decade and a half, rents have very infrequently experienced decreases. A comparable narrative is told by the consumer price index maintained by the Australian Bureau of Statistics. For about half a century, this index has monitored the cost of housing as a component of overall inflation.
The most recent statistics from the national CPI rent index show that rental prices have increased by 6% over the past year up to June, compared with a high increase of approximately 8% in June 2008. Despite this, there was a marginal drop in incidence during the pandemic.
Fotheringham predicts that real estate prices will “plateau rather than drop” in the near future. Because of this, certain localized areas might have seen brief stretches in which rents were more manageable, but for this trend to become noticeable on a national scale, a significant event such as a pandemic would be required.
Even if the national averages reach new heights, it’s possible that they’re hiding a distinct trend in some areas of the country or in certain situations that are one of a kind. In reality, there is no such thing as a nationwide rental market; rather, there are thousands of smaller ones that are differentiated by features such as price ranges, locations, and characteristics of the houses themselves, like the number of bedrooms.
While the rental property markets in Sydney and Melbourne are currently seeing growth, recent years have brought about reductions in Darwin and Canberra. In point of fact, during the early stages of the epidemic, several of the nation’s capitals experienced a drop in rental costs, although the reverse trend was observed in the countryside. It appears that much of that is now shifting in the opposite direction.
But, according to Azize, these averages also fail to take into account what is occurring to persons with lesser earnings. According to the most recent snapshot of rental affordability conducted by Anglicare, out of more than 45,895 nationwide listings, just four rentals were affordable for a single person who was getting the jobseeker allowance.
Even in areas of the country where rentals have decreased slightly, this has not been the case at the more affordable end of the market.
Experts point to a number of factors that are driving rent increases, including shortages of building materials that are slowing down construction, a lack of affordable and social housing, an increasing number of short-term rentals, recent increases in income for some individuals, the trend toward smaller households, and a fresh surge in migration.
“Our rental market has been built this way for decades; we just didn’t see it throughout the 2010s because interest rates were low and there was an abundance of investment properties,” says Eliza Owen, who is the head of research at CoreLogic. “Our rental market has been built this way for decades.”
“We need to change the way that we think about the rental market in the long term.”