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Australia is currently in the midst of a rental crisis. Mortgage rates are on the rise and landlords are raising their rents. In a recent sentiment survey conducted by Your Investment Property, 87% of investors surveyed said they planned on increasing the rent on their investment property in the next lease period. Of that 87% majority, nearly a quarter said they would increase the rent by at least $40 a week.
So as a landlord, how often should you increase the rent and by how much?
A landlord can’t decide at any given moment that their property is underpriced and that it’s time to increase the rent. All property investors are bound by laws and regulations that will determine if and when they can make increases to a tenant's rent within a lease period. However, this does depend on the legislation in your particular state or territory and the type of lease your tenants have.
In most states, including New South Wales, Queensland and Victoria, rent cannot be raised during a fixed lease period unless it was actually specified at the outset. This is different in South
Australia however, where rent can be raised every 12 months, even with a fixed-term lease.
With a periodic lease, there is usually greater room for rent increases. In New South Wales, South Australia and Victoria the rent price can be raised once every 12 months at most. Meanwhile, in Queensland and Western Australia, it can be increased once every six months during a periodic lease.
After evaluating whether your property is underpriced compared to the market average and deciding that it’s a legally appropriate time to increase the rent, you’ll need to give your tenant sufficient legal notice. This timeframe differs between states but is usually between 30 to 60 days.
In order to calculate a fair rent increase, investors should be well educated on the current property market. To ensure that you stay ahead of inflation, a general rule of thumb is that you should be reviewing your property’s rental rate every six months. It’s wise to make small and regular increases to the rent amounts that are just above the Consumer Price Index. An increase of 3-5% every year is usually quite acceptable.
This kind of action ensures that you are earning a fair market rent because at the end of the day the goal is to be profiting from an asset. By gradually increasing the rent amount yearly, it also prevents your tenants from being financially overwhelmed by a large and sudden rental increase, should you wait several years to raise the rent.
Can tenants challenge a rental increase?
As a tenant, there are a limited amount of options available if your landlord comes knocking for a rent increase - particularly if it’s reasonable given the current market average. First and foremost, however, renters should attempt to contact their landlord to arrange a meeting. They may be able to negotiate and find a middle ground between both parties.
If step one fails, the next option could be to appeal the rent increase, if it’s an excessive amount. This can be done at the Queensland Civil and Administrative Tribunal (QCAT), usually within 30 days of receiving the notice of the increase. However, it can be difficult for tenants to prove that the increase is excessive, particularly if rent prices are rising in general. In this case, it may be wise to study the local market to determine whether there’s sufficient grounds for a case in the tribunal.
QCAT usually takes a number of factors into consideration when determining excessive rent increases.
This includes a range of market rents usually charged for similar premises, the difference between the proposed and current rent, the state of repair of the property, the term of the tenancy, the period since the last rent increase (if any) and anything else that QCAT considers relevant within the application.
Where have rental prices increased the most?
The surge in rent prices has been seen consistently across the nation, according to Domain’s quarterly Rental Report. Renters have to dig deeper into their pockets to afford increasing rental costs following double-digit property price growth throughout the country.
Across the capital cities, rental prices for houses have risen 12% and units 12.2% according to the June data, contributing to the fastest annual growth rate recorded by Domain since 2008.
The median weekly rents across the combined capital cities jumped from $460 to $515 over the past year, equating to an extra $2,860 per year. Great for landlords, not so great for cash-strapped renters.
Brisbane, Sydney and some regional areas recorded the largest rent rises. Renters in Brisbane were the hardest hit with steepening rent hikes. Out of all capital cities, it saw the median rent for homes soar 16.9% over the year to $520, median rent for units also rose by 12.5% to $450.
Domain suggests this surge is a result of demand created by younger families relocating to the city, continuing to flow through to units because of the now limited housing stock availability. With international borders now open, the return of international students has also contributed to the demand increase.
Sydney renters were next in line for the hike, with the weekly median rents on a home in the nation’s largest city jumping 12.7% to $620 in the 12 months to June 2022. The median rent for units followed in suit, rising 11.7% to $525 over the year and rising 5% in the last quarter alone.
But it wasn’t just the capital cities that were hit hard, the report identified that renters in some regional areas were also facing similar challenges. For a house in a regional area, the median weekly rent jumped 12.9% annually to $480, and rent increases for units were even steeper at 14.3%, bringing the median weekly rent to $400.
Western Australia recorded the largest increases in regional areas with Coolgardie up 39.5% and Broome up 37.9%. The Queensland town of Bundaberg rose 22.9%, and New South Wales' Cessnock jumped 20%.
