The Australian rental market, once the poster child of relentless growth, has hit a noticeable slowdown. According to CoreLogic’s latest data, July recorded a mere 0.1% rise in national rents, marking the slowest growth pace in four years. This is a marked contrast to the frenetic activity of recent years, where rents soared by 39.7% over five years, leaving tenants gasping for financial air. The shift is more than just a statistical footnote; it’s a breath of fresh air for renters who have faced steep rent increases, watching their weekly payments climb by about $180 since 2018.
Kaitlyn Ezzy, an economist at CoreLogic Australia, views this deceleration as a positive development for renters. After years of relentless demand and climbing costs, this easing trend may offer some respite to tenants across the country. However, the story is not uniform across Australia. Adelaide saw rents rise by 0.6%, while Melbourne and Perth posted modest increases of 0.3%. Darwin and Canberra, on the other hand, saw no change, and Sydney, Brisbane, and Hobart even experienced slight declines.
These regional differences highlight a critical point: affordability is becoming a significant issue in the major cities. With tenants unable to stretch their budgets further, many are exploring alternative housing solutions. Some are opting for shared housing arrangements, while others are moving to more affordable locations or even exiting the rental market in favour of homeownership. This shift suggests a growing awareness among renters of their financial limits and a move towards more sustainable living arrangements.
CoreLogic’s Rental Value Index also tells a story of slowing momentum. The annual change in national rents was 7.8% in the year to July, the smallest increase in three years. This is down from a recent peak of 8.6% in April, with the slowdown primarily driven by the capital cities, where growth dropped from 9.7% in February to 8.0% in July. Meanwhile, regional areas have seen a slight acceleration in growth, with rates rising from 5.4% to 7.1% over the same period.
Perth stands out with the strongest rental growth, with rents increasing by 12.7% annually, followed by Regional Western Australia at 10.6%. These figures reflect broader trends of lifestyle changes, relative affordability, and migration patterns that favour regional areas. For some, the high cost of city living is a nudge towards the quieter, and often more affordable, life in regional towns. Investors, too, are taking notice of these shifts, as they seek to capitalise on the potential for capital gains in these emerging markets.
The changing dynamics in the rental market are also influencing the property buying landscape. Lending to first-home buyers rose by 1.5% to $5.3 billion in June, comprising nearly 30% of new owner-occupier finance. This trend underscores a significant shift towards homeownership, particularly among those who can afford mortgage repayments and have stable employment. At the same time, new housing lending increased by 1.3% to $29.2 billion in June, driven by a 2.7% rise in investor lending. Investors appear to be more focused on capital gains rather than high rental yields, reflecting a broader confidence in the property market’s long-term prospects.
Despite these shifts, the rental market is not out of the woods yet. Net overseas migration has slowed, and rental growth has decelerated, but substantial relief for tenants is not likely to come quickly. The supply of rental properties remains tight, and this scarcity is expected to continue exerting upward pressure on rents, albeit at a slower pace. The issue is compounded by historically low dwelling approvals and commencements, which suggest that new housing supply will not be able to meet demand in the near term. This presents a significant challenge for policymakers, the property industry, and tenants alike, as they navigate a market that remains fundamentally imbalanced.
CoreLogic’s August Housing Chart Pack provides further insights into the state of Australia’s housing market. The combined value of residential real estate rose to $10.9 trillion at the end of July, underscoring the scale of the market. However, national home values eased to a 1.7% increase over the rolling quarter, down from a cyclical high of 3.3% recorded in the June quarter of 2023. This easing trend is evident in Sydney, Brisbane, Adelaide, and Perth, where dwelling values are currently at record highs. Perth led the way with the highest monthly dwelling value increase in July at 2.0%, taking its annual increase to 24.7%, followed by Brisbane with a 16.0% annual increase and Adelaide at 15.5%.
While the market has shown signs of cooling, the volume of annual transactions suggests that activity remains robust. CoreLogic estimates 511,211 sales in the 12 months to July, slightly down from 513,014 in the year to June. Despite this decline, transaction volumes are still 9.3% higher than last year and 5.1% above the five-year average. However, the time it takes to sell a property has increased, with the average days on market rising to 33 days in the three months to July, up from 27 days in the three months to April. This increase is largely driven by longer selling times in Sydney, Melbourne, and Hobart, indicating that buyers may be taking a more cautious approach in these cities.
Vendor discounting has also trended slightly higher, reaching 3.7% in July, up from 3.6% in June. This reflects a market that is beginning to slow, with sellers needing to be more flexible in their negotiations to secure a sale. Despite these challenges, demand remains steady, as evidenced by the total number of advertised listings. In the four weeks to 4 August, new listings totalled 36,973 nationally, 1% higher than the same time last year and 7.7% above the historic five-year average. Total listings remained steady during the traditionally quiet winter period, suggesting that buyer interest has not waned significantly.
However, the supply of properties remains uneven across the country. Western Australia, South Australia, and Queensland continue to experience limited supply, which has supported value growth in these regions. In contrast, Victoria and Tasmania are seeing an accumulation of listings, contributing to softer market conditions in these states. Auction clearance rates have also remained relatively stable, averaging 64.2% in July, in line with June’s figures but slightly weaker than the 10-year average of 65.6%.
The rental market’s future remains uncertain. Growth in rent values slowed to 7.8% in the 12 months to July, the slowest annual change in three years, as demand in the capital cities eased. This slowdown is a welcome development for renters, but the underlying issues of supply and affordability persist. With the market continuing to evolve, all eyes will be on how these trends develop in the coming months. For now, the cooling rental market offers a glimmer of hope for those struggling with high housing costs, but it is clear that more needs to be done to address the broader challenges facing Australia’s property market.
