Australia’s rental market forecast to slow in 2024: Three reasons why

Rental growth is predicted to slow in 2024, according to CoreLogic‘s head of research, Eliza Owen.

“Rent values rose for the 35th consecutive month nationally in July. However, monthly rent growth has eased over the past four months,” she said.

Owen also observed that rental prices had been slowing across regional Australia since April last year and are close to flattening out, albeit at high levels.

Portion of suburbs where rents fell in the past quarter

	Houses			Units
Region	Suburbs Analysed	Number of suburbs in decline	Percentage of suburbs in decline	Suburbs Analysed	Number of suburbs in decline	Percentage of suburbs in decline
Sydney	515	98	19.0%	291	20	6.9%
Melbourne	323	16	5.0%	237	2	0.8%
Brisbane	280	25	8.9%	144	3	2.1%
Adelaide	207	8	3.9%	61
Perth	249	6	2.4%	91	2	2.2%
Hobart	40	37	92.5%	13	12	92.3%
Darwin	31	3	9.7%	17	1	5.9%
Canberra	81	72	88.9%	41	35	85.4%
Regional NSW	393	151	38.4%	102	35	34.3%
Regional Vic.	159	36	22.6%	39	5	12.8%
Regional Qld	336	77	22.9%	129	19	14.7%
Regional SA	35	10	28.6%	2	1	50.0%
Regional WA	66	3	4.5%	8
Regional Tas.	40	19	47.5%	6	4	66.7%
Regional NT	6	6	100.0%
Combined capitals	1,726	265	15.4%	895	75	8.4%
Combined regional	1,035	302	29.2%	286	64	22.4%
National	2,761	567	20.5%	1,181	139	11.8%

Source: CoreLogic.

The reduced pace of rent rises will be welcome news to renters doing it tough.

Earlier this year, several reports found rental affordability was at dire levels. A Savvy report found over two in five low-income households were spending over 30% of their income on rent. The ANZ CoreLogic Housing Affordability Report in May found the portion of income required to service a new lease was at its highest level since June 2014, at 30.8%. Lower-income households were doing it much tougher, spending over 50% of their income.

Three reasons rents will slow next year

1. Interest rates are expected to be cut,
2. Softer income growth, and
3. Stretched rental affordability.

Are rents and the cash rate linked?

Interest rates and annual growth in rent prices typically move together over time, according to Owen.

With many experts forecasting cuts to the interest rate in 2024, renters can expect some reprieve next year.

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Source: ABS, CoreLogic.

“A reduction in interest rates could increase demand from housing investors, and increased investment purchases add to rental supply, which may serve to lower rent growth,” said Owen.

She also observed an upward trend in investment loans secured since the start of 2023.

“Investment loans are offsetting the rate at which new investment listings are being added to the market.”

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Source: ABS, CoreLogic.

Will share houses make a comeback?

Income growth has ebbed and flowed in recent history.

Owen noted that more money in the back pocket was likely one of several factors that led to fewer share-houses throughout the pandemic.

Alongside needing more space, particularly during lockdowns, Owen said, “people could afford leases on more spacious properties, which has contributed to lower stock levels as households spread out across the dwelling market.”

Income growth is expected to be another measure that will slow in 2024.

“Monetary policy is taking effect in reducing demand in the economy, the unemployment rate rose to 3.7% through July, and annual growth in the WPI slowed to 3.63% in the latest print,” said Owen.

“As income growth slows, renting households may look to adjust their housing situation, and re-form share houses.”

Renters have reached their limit

Soaring costs have left many renters in rental stress. CoreLogic data estimated that the proportion of income required to service new rents was around 30.8%, nationally, in March 2023. CoreLogic’s measure of rents has increased 29.3% since a low in August 2020, or the equivalent of a rise in median weekly rents of $134.

“Rent value growth is likely to slow because of base effects alone, but renters also tend to be on lower incomes, which means there could be a ceiling on how high rents can go before tenants adjust their housing preferences,” said Owen, who added that this may take the form of share-housing.

It may also appear in internal migration patterns.

“In the 12 months to June last year, ABS data showed more affordable rental markets like Logan–Beaudesert and Ipswich with the first and third highest volume of net internal migration across the country. This overtook the Gold Coast, which had the highest net internal migration in the previous year. Such internal movements could ease demand in the most expensive rental markets, bringing down growth in the national rents.”

Article source: Queensland Property Investor