InvestorKit Founder and Head of Research Arjun Paliwal says Australia's 'investor bashing' rhetoric has a lot to answer for when it comes to the current rental crisis.
“While there is no doubt Aussies are hurting from rising rental and living costs, blaming the landlord is not the solution. In the near-term, Australia's rental supply, especially in capital cities, will be further tightened until investors start purchasing more actively, construction improves and household sizes shift up due to cost pressures,” Mr Paliwal said.
"Today’s rental crisis boils down to supply and demand issues. Increasing regulatory and lending restrictions, back-to-back rate hikes and investor sales, rising costs of living and property maintenance, and an uncertain economic environment are all factors dampening investor sentiment in the Australian property market.
“We have seen an increase in investor sellers in the market adding to the diminishing rental supply, alongside a lack of new build completions for investors coming on quick enough. Today, building a house is 28 percent more expensive than two years ago, which has severely impacted new building activities, with a 40 percent reduction in monthly new build approvals."
InvestorKit's latest research reveals rental growth is set to continue, with double digit percentage rental increases likely in many rental markets.
The report, 20 regions where rents will continue surging in 2023, says increases between $2,600 and $3,900 in annual rents are expected in the coming 12-24 months.
Mr Paliwal said strengthening migration will play a big part, with supply likely to take time to catch up.
“Australia’s capital cities are experiencing a strong bounce back, with strengthening migration, the return of international students, and Australians flocking back to CBDs. We have seen this especially in the Melbourne and Sydney markets," he said.
Which markets are set to boom?
According to the report, the following markets are expected to perform strongly in the next 12-24 months:
1. Sydney and Melbourne
Australia’s leading capital cities are both set for strong rental growth, according to Mr Paliwal.
"Both markets have seen rental growth of approximately nine percent over the past 12 months and this is set to continue," he said.
"Rising migration and tight supply and demand will see these markets as top performers in the near to medium term."
2. Adelaide
Rental returns in Adelaide have surged by almost 50% in the last ten years, including more than 11% in the past 12 months according to Mr Paliwal.
"This long-term growth is higher than the average of the eight greater capital cities," he said.
"Adelaide's internal migration is quickly turning from negative to positive, its net overseas migration trend has reached the highest point in over a decade, and risk of oversupply in the market is limited.
"InvestorKit expects healthy rental growth in Adelaide over the next 12-24 months."
3. Upper Hunter
"The vacancy rate of Upper Hunter has been sitting at an extremely low level since 2021, which pushed rentals up by 12.5 percent in the past year," Mr Paliwal said.
"The recovering local job market has seen more and more people choosing to call this region home, while new housing supply remains low. This market is set for strong rental returns in the next 12-24 months."
4. Townsville
"The vacancy rate of Townsville dropped to a crisis level in 2020, and has stayed well below 1 percent since then, seeing rents rise by almost 10 percent in the previous 12 months," Mr Paliwal said.
"As supply level is staying low, the high market pressure will likely push rents further up. Townsville is becoming one of the fastest growing internal migration magnets of the country, which will see rental demand continue to surge."
5. Bunbury
"Low vacancy rates have pushed Bunbury's rents up by almost 17 percent over the past year," Mr Paliwal said.
"As supply level is not increasing dramatically, the high market pressure will likely push rents further up. The increasingly active job market, lifestyle and affordability of Bunbury has seen strong internal migration, which is set to continue.
"Established supply is tight and demand is rising, while new build approvals are low. Bunbury will be a strong regional rental market."
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