The real estate market is witnessing a positive shift as investors return, bringing potential relief for renters grappling with tight conditions, according to PropTrack.
The growing number of rental properties, although at a slower pace than pre-pandemic levels, is expected to ease conditions for tenants and slow down rent price growth in 2024.
The rental market faced unprecedented challenges in 2023, marked by record-low vacancy rates, with just a little over 1% of rental properties available for rent across capital cities and regional Australia throughout the past year.
Rental properties that were available were swiftly leased, with typical rental properties being leased more than a week faster than the pre-pandemic period, leading to a notable 13% increase in advertised rents in capital cities. This surge placed significant financial pressure on tenants, especially in the face of the persistently tight market conditions.
“While rent growth in regional parts of the country was more moderate, it follows a period of particularly strong growth early in the pandemic, with typical rents now $135 per week more than before the pandemic,” said Paul Ryan (pictured above), PropTrack senior economist.
“In capital cities, typical rents are now $165 more per week than before the pandemic –with rents continuing to grow strongly due to tight market conditions.”
The scarcity of rental properties and rapid rent growth is proving to be a catalyst for the return of investors to the market.
In Australia, more than 80% of renters reside in privately owned rental properties, relying on other households to offer rental accommodation. Despite a significant increase in interest rates, which could potentially lessen the attractiveness of property investment, the number of investors securing loans for property remains significantly higher than pre-pandemic levels, rebounding after a dip in late 2022.
“This is good news for renters – the best way to slow rent increases is by increasing the supply of rental homes to match demand,” Ryan said.
The rental stock, however, is experiencing slow growth, partly attributed to existing investors selling their properties during the pandemic.
Throughout 2021, more rental properties were sold than new ones added to the market, PropTrack data showed. While the share of rental properties being sold has moderated in 2022 and 2023, having grown by a little more than 2% in each of these years, Ryan said the growth rate remains below pre-pandemic levels, leaving the total number of rental properties more than a quarter of a million homes below projections.
“Some of this story is good news: many homes sold by investors were bought by first-home buyers during the pandemic,” he said.
The involvement of investors is crucial for financing new development projects, particularly in apartment developments where buyer deposits are often required well in advance.
“The re-emergence in investor activity in 2023 heralds good news for the overall health of the market. This will help to drive more new construction, which will slowly rebalance supply and demand in the rental market,” Ryan said.
Despite the positive trends, renters may continue to face challenges in the short term, as the number of available rentals is expected to remain low.
“While rent growth has slowed, we expect the high level of rents will persist and further growth will continue,” Ryan said. “But we are slowly seeing the market rebalance following the significant disruption of the pandemic and that is something many renters will be happy to see.”
Visit the realestate.com.au website to read the PropTrack article.
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