The Challenging Future of Australia’s Rental Market: Why Lower Rents Seem Unlikely Anytime Soon
As Australia’s rental market remains at record highs, the prospect of rents falling significantly is looking increasingly unrealistic, according to leading economists. Despite a recent slowdown in growth, experts predict that Australian renters are unlikely to see cheaper prices in the foreseeable future. Instead, factors such as high interest rates, insufficient housing supply, and steady population growth are expected to keep rents elevated.
In the September quarter, the median house rent in Australia’s capital cities remained steady at $650 per week, up from $430 just five years ago. For units, the median weekly rent has surged from $450 in 2019 to $630 today, according to Domain’s Rent Report. Cities like Sydney, Melbourne, Brisbane, and Perth have seen house rents skyrocket to $775, $580, $625, and $660 per week, respectively. The rental market’s current state is largely attributed to recent macroeconomic conditions.
Dr. Diaswati Mardiasmo, chief economist at PRD, explains that a key driver of these record-high rents has been the rapid rise in interest rates over the past few years. “The fastest interest rate hikes in a generation were a major factor in the escalation of rents in the past four years,” Mardiasmo said, noting that many landlords increased rents to cope with the higher costs of holding onto their investment properties. Even if interest rates were to decrease slightly, it’s unlikely that this would lead to a drop in rents. Mardiasmo emphasizes, “The expectation that they’ll drop back to pre-COVID levels is quite unrealistic.”
Another critical factor impacting Australia’s rental market is the supply of housing. Dr. Peter Tulip, chief economist at the Centre for Independent Studies, believes that a significant decline in rents would only be possible with a large-scale increase in housing supply. “We’d have to build a lot of housing for that to happen—hundreds of thousands of new houses, or even millions of dwellings,” Tulip explains. However, he also points out that this would require a major shift in both government policy and societal attitudes towards higher-density development.
Tulip uses Auckland, New Zealand, as an example of how loosening zoning restrictions can lead to more housing supply and ultimately lower rents. “As a result of increased housing projects, rents there have fallen 28 percent relative to other New Zealand cities. They are still high, but no longer stratospheric,” he notes.
BIS Oxford Economics’ Sean Langcake highlights another challenge: population growth. With Australia’s population growing at around 0.9% per year, the demand for housing continues to rise, making it difficult for supply to keep up. “The worst outcome is that rents would drop because the whole market and economy were declining,” Langcake warns, suggesting that any meaningful reduction in rents would require substantial changes across multiple sectors.
In conclusion, while some regional and suburban areas in Australia may see minor decreases in rent, broader declines across the country appear unlikely. Without dramatic policy changes, an increase in housing supply, or a shift in population trends, high rental costs are likely to persist, leaving renters with little relief in the near future.
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Melissa Fisher
Founder, Acuity Development Group & The Right Team