Australian renters are tapped-out


I argued on Monday that rents had hit an affordability ceiling after CoreLogic’s rental index recorded the lowest monthly growth (0.4%) since September 2023.

In its commentary accompanying its release, CoreLogic noted that rents had risen aggressively compared with incomes, straining household budgets:

“National unit rents are up 22% over the past two years compared with a 16% rise in house rents over the same period”.

“CoreLogic affordability metrics to March showed the median income household would need to dedicate 32.2% of their gross annual income to rental payments, the highest portion on record”.

CoreLogic annual rental growth

Source: CoreLogic

SQM Research has released its rival asking rents series, which paints a similar picture.

As the next chart from Justin Fabo at Antipodean Macro shows, quarterly growth in asking rents has slowed materially across both detached houses and units:

Quarterly growth in asking rents

That being said, rents have soared by an astronomical amount over the past two years, led by detached houses:

Capital city asking rents

Even if rental growth slows, it will likely remain above income growth so long as population demand via net overseas migration continues to swamp new dwelling construction:

Home construction vs population growth

Accordingly, Australia’s housing shortage will continue to grow, placing upward pressure on rents as well as prices:

Accumulated housing shortage

As noted by AMP chief economist Shane Oliver last month:

“If the decline in the average number of people per household seen in the last few years is sustained then the accumulated shortfall could be around 300,000 dwellings. Which would be well above where we were before the unit building boom got underway around 2015″…

“The housing shortfall looks like it will get worse before it gets better”.

The upward pressure on rents from the shortage will also add to Australia’s CPI inflation, given that rents comprise around 6% of the CPI basket.

CPI rents inflation

It is an inequality disaster for Australian renters, and it can only be fixed by reducing net overseas migration to a level below the country’s ability to build homes and infrastructure.

About the author
Leith van Onselen is Chief Economist at the MB Fund and MB Super. He is also a co-founder of MacroBusiness. Leith has previously worked at the Australian Treasury, Victorian Treasury and Goldman Sachs.