Why renters are having a tough time right now

Many renters are still finding it hard to secure an affordable place to live as demand for homes outpaces supply. 

While costs remain high, new data suggests momentum is building in the construction pipeline, with home approvals hitting a three-and-a-half year high. 

Rents remain high as demand stays strong

Rents have climbed 5.2 per cent over the past year, pushing the national median to $681 a week, according to property data firm Cotality. Renters are paying about $204 more each week than they were five years ago.

Sydney remains the country’s most expensive rental market, with a median of $817 a week. Darwin recorded the biggest annual rise in rents, up 8.2 per cent, and Melbourne saw the smallest increase at 2.9 per cent.

Vacancy rates, which measure the proportion of rental properties empty and available to lease, fell to 1.7 per cent nationally in December. That’s down from 2.1 per cent a year earlier and below the pre-COVID decade average of 3.3 per cent. Adelaide continues to have the tightest rental market, with a vacancy rate of 1.1 per cent.

Cotality research director Tim Lawless said the rental market remains tight as new supply slowly catches up.

“There isn’t really too much sign of any real alleviation in the scarcity of rental stock, which of course means there’s ongoing upwards pressure on rents,” he told AAP.

Supply and demand pressure outweighs rates

CBA economist Harry Ottley said higher interest rates are often blamed for rising rents, but the main issue for renters is the imbalance between supply and demand. 

“What matters for rents inflation is how quickly demand is growing from population growth and how many homes, especially multi-unit dwellings, are being built. Population growth has eased a lot recently, and supply is picking up but there remains a housing shortage and rents continue to rise, albeit not as quickly as during the worst of the rental market strain during 2022-2024.”

“All else equal, interest rates don’t tend to affect renters as much as homeowners,” Ottley said. “Renters don’t face higher mortgage repayments, and higher rates can actually encourage saving and slow dwelling price growth.”

Home approvals highest since Feb 2022

New home approvals are showing positive momentum, with the number of dwellings approved for construction jumping 15.2 per cent in November to 18,406, according to seasonally adjusted Australian Bureau of Statistics figures.

That’s the highest monthly total since February 2022 and comes after a 6.1 per cent fall in October. The increase was led by a 34.1 per cent rise in apartment and townhouse projects. 

On average, approvals are sitting at about 16,500 per month, which would put the nation on track to build around 200,000 homes per year. 

The National Housing Accord, a federal agreement between governments, industry and unions to address housing supply, set a goal of 240,000 homes per year to achieve a target of 1.2 million new homes over five years. 

The focus turns to getting projects built

Although the steady rise of approvals after hitting a low in early 2024 offers some hope, approvals are only one piece of the puzzle. 

Builders still need to get homes onto the ground and continue to face challenges such as rising construction costs, ongoing skills shortages and infrastructure bottlenecks.  

The road ahead

The combination of strong demand, limited supply and high construction costs has created a difficult environment for renters, landlords and policymakers alike.

While conditions remain tough for many renters, the recent rise in approvals and the continued attention on housing supply are positive steps forward.

“For renters, what happens next really comes down to supply,” CBA’s Ottley said. “The quicker more homes come online, the more pressure can ease.”