Swings and roundabouts...

There are always mixed reactions when changes affecting the market occur – depending on your situation of course.

Twelve months ago, demand for rental properties rose so high that, while rents followed suit, it caused the Sydney residential accommodation landscape to take on a whole new complexion. To add to the squeeze, competition for the relatively few available properties left most applicants in despair.

In fact, between August 2020 and June 2024 rents rose a staggering 39%. To put that into perspective, rents were rising nationally at the average annual pace of just 2.0% per annum in the ten years before March 2020.

The last few months have seen a shift back to more subdued growth, particularly in units, but most cities are still recording an annual rental trend that is well above the pre-COVID average.  

So what has changed?

One of the most obvious factors would be affordability. The proportion of a household’s income required to pay the median rent is at a record high. Where we saw household sizes reduce slightly during the pandemic, households are once again becoming larger as tenants reconsider their housing options, choosing to move into share accommodation or back home. Others have opted to move to more affordable areas. This has all helped to reduce pressure on the rental market, albeit very slowly.

Data shows that net overseas migration peaked in the first quarter of 2023 and by December 2023 it had almost halved. With approximately 90% of net migration to Australia arriving on temporary visas, the flow through to rental demand is direct and immediate. Less migration helps to explain a further reduction in rental demand.

Other possible reasons for the rental slowdown may be the completion of new homes related to the HomeBuilder grant that the government implemented in June 2020, converting more renters to homeowners, and the increase in investor activity contributing to a rise in available rental properties.

So while renters have had some reprieve, landlords are facing tighter conditions, in particular those who have mortgages, while interest payments have gone up and rents have abated.

Swings and roundabouts as they say.