Rental markets tighten in all capital cities bar Melbourne in July, Domain vacancy rate shows

The proportion of rental properties left sitting empty across Australia is holding steady, despite a continued increase in vacant homes in Melbourne, new figures show.

Close to 63,000 homes were empty at the end of July with the national vacancy rate holding firm at 2.1 per cent – down from a peak of 2.6 per cent in April – according to the latest Domain Rental Vacancy Rate.

Of these, more than a quarter were in Melbourne, where the vacancy rate pushed up to 3.2 per cent over the month, as the city’s second lockdown to curb the coronavirus pandemic impacted on demand for rental properties.

The rate increase – up from 3 per cent in June and 1.7 per cent in March – was a result of more than 1200 additional Melbourne properties becoming vacant over the month of July, which saw the city return to stage three coronavirus restrictions. It brought the total number of vacant Melbourne properties to more than 17,800, according to Domain data.

The rising vacancy rate was to be expected in Melbourne, which entered into stage four restrictions this week, Domain senior research analyst Nicola Powell said.

“Melbourne deviating from other capitals was expected given it’s well into the next lockdown, so any renewed short-term demand on rentals has been stopped,” Dr Powell said.

The elevated vacancy rate could continue to put downward pressure on rents, which have already seen median price declines of 3.5 per cent for houses and 2.3 per cent for units.

Elsewhere across the country, rental markets tightened in each of the capital cities as COVID-19-related restrictions continued to be wound back.

While short-term holiday lets flooded the rental market when tourism came to a halt, driving up rental vacancy rates, some were now returning to the holiday market as conditions improved in parts of the country, Dr Powell said.

“Any landlords that couldn’t secure a medium to long-term tenant in lockdown one will be shifting [their property] back to the shorter-term market,” she said.

“It’s that renewed demand on short-term leases and holiday lets that have helped to put down vacancy rates across the other capital cities.”

Dr Powell said lower rental prices could also be encouraging more young people with secure jobs to move out of the family home, and reversing some of the household consolidation seen at the start of the pandemic.

Sydney’s vacancy rate declined to 3.5 per cent, down from 3.6 per cent the previous month and 50 basis points lower than the peak in April when it hit 4 per cent.

However, the harbour city’s vacancy rate was still up year-on-year and remained the highest in the country, with more than an estimated 22,200 vacant listings at the end of July.

Dr Powell said the rental markets in both inner Sydney and inner Melbourne – which had a greater proportion of short-term holiday lets and were typically popular with international students – had been hard hit by the drop-off of overseas migration.

“We’re looking at the bigger picture here, but in Sydney and Melbourne [the rise in vacancies], it’s severely concentrated in inner-city areas. In some rental markets, it will be business as usual because they won’t be as impacted … but any area exposed to a higher level of overseas migration, that market will not return to normal until international borders are opened.”

Brisbane had the third highest vacancy rate of 2.2 per cent, down 30 basis points from the previous month and flat year-on-year. It was followed by Darwin, which saw the sharpest decline of all the capitals, with the rate down 50 basis points over the month to 1.7 per cent and 200 basis points year-on-year.

Perth also saw a significant annual decline, with the vacancy rate falling from 3 per cent in July 2019 to 1.3 per cent last month.

“This is the lowest vacancy rate Perth has seen in a number of years,” Dr Powell said. “Even though it did see a lift during the COVID lockdown, the vacancy rate has since been continuing to track downwards.

“The rental market is often a leader of what we see in the sales market. Recovery is very much still on the cards for Perth – COVID paused that, but it’s still likely to come.”

Dr Powell added a lack of interstate movement during this period could also be benefiting rental markets in cities that typically lost residents to Sydney and Melbourne.

The vacancy rate in Adelaide and Canberra also continued to decline, with both capitals falling 10 basis points to 0.9 per cent and 1.1 per cent respectively.

Hobart was the tightest rental market in the country, and had almost returned to pre-pandemic levels with the vacancy rate falling from 0.9 to 0.7 per cent. Given the small size of Hobart’s rental market, this change was due to just 31 fewer vacant rentals being on the market in July.

The rate is now only 30 basis points higher than the extremely tight 0.4 per cent recorded at the same time last year.