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Tenants will have to continue enduring some of the worst rental conditions in history for much of this year, but things may gradually improve by next year, new modelling shows.
The Oxford Economics research showed rent rises were likely to slow while vacancy rates around the country could rise from their record lows.
This was largely because of greater housing supply and a tapering off in migration.
National total dwelling rents ended 2023 up 12.9 per cent, with growth skewed towards units (+15.2 per cent), but future rent increases were expected to be more modest.
Rent growth was forecast to slow markedly to an average of 3.2 per cent and 3.6 per cent per annum for houses and units respectively over the three years to the end of the 2026/2027 financial year.
Senior economist and report author Maree Kilroy said these kinds of increases would be more in line with historic inflation and would be closer to normal conditions for the market.
The return of more share housing could ease demand pressures – especially within inner areas.
She explained that high migration has been a key driver of skyrocketing rents and it was likely inflows had “peaked”.
After surpassing half a million in FY2023, net overseas migration is projected to taper back to 410,000 in FY2024 and 250,000 per annum by FY2027, the report noted.
Ms Kilroy added that the return of high occupancy households – such as share houses, which became unpopular during the pandemic – would take additional pressure off rents.
The Oxford Economics report said: “Rental affordability has deteriorated over the last two years … (this) is forcing larger rental households to be formed”.
National total dwelling rents ended 2023 up 12.9 per cent, with growth skewed towards units (+15.2 per cent).
Quarterly growth has eased from its extremes but should nonetheless remain elevated near term, according to Oxford Economics.
Rental supply is currently at a record low.
“From the current extreme low, we expect rental vacancy rates will lift slightly in 2024 but remain very tight by historical standards,” Ms Kilroy said.
Tenants moving out of rentals into housing constructed through the government’s HomeBuilder scheme could further reduce pressure on the rental market, Ms Kilroy said.
It was also likely already exhausted renters may be unable to afford any further rent increases – no matter how much landlords may want them.
“Stress on household budgets has reached a level that will significantly limit the capacity for further rental gains,” Ms Kilroy said.
“The return of interest rate cuts from late 2024 will ease leveraged property outgoings. On balance, we expect this to pass through to more modest rent increases at lease renewal.”
Looking forward, Oxford Economics Australia expected landlords’ rental yields to peak early in 2025 before tightening through to 2027.
“Governments have moved to increase charges on residential property investors – both domestic and foreign,” Ms Kilroy said.
“State governments are targeting holiday rentals as a source of supply for the long-term rental market. Multiple regions have announced or are in the process of actioning policy in this space. Outside of specific holiday postcodes, the upside for rental supply is likely modest near term.”
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