Rental market loses steam as tenants hit affordability ceiling

Australia's rental market is showing signs of slowing down, despite rents remaining at record highs. According to new data, capital city house rents were unchanged at $700 a week over the September quarter, while unit rents rose by 1.5 per cent.

Rental growth slows down

The slowdown is challenging the long-held relationship between tight rental supply and growth, according to Domain's chief residential economist Nicola Powell. "Tenants' ability to absorb further increases is really the dynamic that is limiting further rental growth," she said. "There's almost a disconnect now between where vacancy rate sits and what is occurring for rental growth."

Although it is still "a landlords' market" in all major capitals and regional areas, the severe supply shortage is not necessarily transferring into rental increases as tenants hit their ceiling. Rents for houses are at or near record highs, with Sydney, Darwin, and Perth being the most expensive cities to live in.

Rents flatline in many cities

The new data found rents in Melbourne, Brisbane, Perth, and Adelaide flatlined over the past three months. And housing rents fell in Sydney and Canberra by $5 and $10 respectively, erasing gains in June. Only Darwin and Hobart bucked the trend across the capital cities, recording rises of 5.3 per cent and 1 per cent respectively in houses in the past quarter.

Although the market is slowing, with the national vacancy rate rising by 0.1 percentage points to rest at 1 per cent, it is still much tighter than it was a year ago.

Renters finding ways to cope

Cameron Kusher of Kusher Consulting, an independent property economist, said renters were finding other ways to survive as the market squeezed them. "Because rents have increased so much over the last few years, what people are doing is they're renting in a less ideal location," he said. "So they're opting for a cheaper rental, maybe not ideally where they want to live but basically a trade-off that they're having to make."

Migration policy floated

The figures came after a proposal to cut migration to curb rent rises. The plan suggests it could save Australian renters almost $3,000 a year. However, Mr Kusher said, "I don't know that that's enough to significantly improve rental affordability given how much rents have increased over recent years." He added, "But I feel like, at this point, renters would probably take any win that would lower their rent."