Cotality (formerly CoreLogic) has reported a tightening in rental vacancy rates over recent months.
This tightening is illustrated below by Justin Fabo from Antipodean Macro. Vacancy rates have tightened across the board and are tracking below 2% across all capital city markets.
Despite the lower vacancy rates, Cotality reported a moderation of annual asking rents across most markets in May.
Cotality attributes the slowdown in rental growth to “a combination of affordability constraints and normalising net overseas migration”.
“Even if there are fewer vacant properties available for rent, it’s hard to see how rental values can continue to record a strong rise off already high prices, especially with wage growth now slowing”, Cotality wrote.
“Larger households may be forming as a result, such as share homes and multi-generational living arrangements, taking some pressure off demand”.
The slowing in net overseas migration is also “contributing to the slowdown in rental demand”, Cotality argues.
Indeed, Australian asking rents have risen by nearly 50% since the beginning of the pandemic, which has seen a record share of income devoted to paying rent.
As a result, there isn’t much capacity for tenants to pay more.
The average household size has also rebounded, tracking above the levels of the early-to-mid-2000s across the capital cities.
This suggests that tenants have mitigated the rental crisis by moving back into shared housing.
While net overseas migration has fallen from its recent peak, it does appear to have accelerated recently, which might explain the corresponding reduction in vacancy rates.
Meanwhile, new dwelling construction continues to track near decade lows, suggesting that population demand continues to outstrip supply:
The latest forecasts from the National Housing Supply and Affordability Council (NHSAC) suggest that population demand will exceed supply over the next five years, resulting in a cumulative shortfall of 79,000 homes above what already exists.
As a result, NHSAC warns that the projected shortage will add “to the already significant degree of rental stress in the system. Rental housing will remain scarce for households across the income spectrum as the vacancy rate remains below its historic average”.
