Landlords could once increase rents 20 per cent a year. That’s changed

Intense competition for rental properties eased in February, new data shows, but experts view this as temporary, tipping tougher conditions for tenants ahead.

Still, the days of more than 20 per cent increases for rents in a year look to be over.

Despite more properties being available for rent in February than the previous month, experts say it’s still a landlord’s market as high demand for properties looks likely to continue.

The national residential rental vacancy rates ticked up to 1.3 per cent in February, compared to 1.0 per cent in January, figures from SQM Research show. The total number of vacant properties available to rent for February came in at 38,427 across the country, up from 31,822 the month before.

While this provided some temporary breathing room for tenants, SQM Research managing director Louis Christopher said the national rental market remained “very tight”.

“ With just 38,000 properties Australia-wide vacant, and when you compare that to the population, it’s a pretty small fraction in terms of the available vacant rental pool,” he said.

At the start of the year, tenants are usually contending with fewer vacant properties and high competition, partially due to weaker rental supply, so February’s dip compared to January was “slightly abnormal”, said Christopher.

“The expectation is March will be a month where the market is still going to remain still somewhat tight, and I would not be surprised at all if we recorded a fall in rental vacancies,” he said.

More positively for tenants, there are signs that growth in rents may be slowing.

“A lot of the rental crisis has now been priced in. The days of 20 per cent plus rental gains in a year are clearly over,” said Christopher, who expects a climate of rental increases of around 2-6 per cent annually, depending on location.

Dr Angela Jackson, lead economist at Impact Economics and Policy, said that while there had been improvement in vacancy rates over the past year, the number of available properties still remained lower than before the pandemic.

“It’s still comparatively quite difficult out there for renters to find accommodation that can meet their needs,” she said.

Despite expecting more properties to come onto the rental market due to the possibility of higher rental yields, Jackson said, “we’ve still got a way to go to see those vacancy rates up at their pre-pandemic levels”.

While rental vacancies across Australia for February suggest a slight easing in the rental market from the tightening over January, the Melbourne market was a standout for tenants. Its vacancy rate rose to 1.8 per cent in February, from 1.5 per cent in January, SQM Research data revealed.

“In Melbourne, the situation is a little bit easier for tenants compared to where we were this time last year,” Christopher said, adding that in February 2024 the city experienced a record-low rental vacancy rate of 1.0 per cent.

In Sydney, residential property vacancy rates rose to 1.5 per cent in February, from 1.4 per cent in January. Brisbane residential vacancies rose to 1.0 per cent from 0.8 per cent in January, while Perth increased slightly to 0.6 per cent in February.

Over the past month to 11 March, advertised rents in capital cities grew by 0.4 per cent, according to SQM Research data, to $737. Sydney renters saw a slight decrease of 0.1 per cent to $844 per week, while in Melbourne rents increased by 1.0 per cent to $646. Ongoing demand pushed Brisbane rents up by 1.0 per cent to $676.

Joel Dignam, executive director of tenant advocacy group Better Renting, said after years of rent hikes, tenants have reached a point where the increases were no longer sustainable.

Some have been moving back in with parents if they are fortunate enough to have the option, or getting an extra housemate in what was previously a spare room, he said.

He is hearing less often of tenants receiving 10 per cent-plus rent hikes.

“Although rents are still going up, they’re going up by a smaller amount. And that’s not necessarily mission accomplished, but it is a welcome relief,” he said.

“For people who are renewing a rental, there’s a bit more scope for the rent to be sticky, and I think some of that really intense upwards pressure that was there has moderated.”

He noted Victoria’s parliament last week passed laws banning rent bidding, but called for states to consider the ACT model that limits rent increases to the rate of inflation for Canberra rentals, plus 10 per cent.