Rent rises are slowing so will rentals get more affordable?

After years of consistently above-par price growth, the heat finally appears to be coming out of the Australian rental market.

Rents increased by just 0.1% across the country in July according to the latest research produced by CoreLogic - the slowest growth rate since 2020.

"Looking at the national level, we've seen the pace of growth really pull back in the past couple of months as rents rose by about 0.1% in July which is down from about 1% in March," says Kaitlyn Ezzy, CoreLogic Australia's economist.

"That's the smallest monthly increase in almost four years, though that being said, rents at the national level are still in the positive, but they're rising much slower."

The national growth rate also declined to 7.8% in the 12 months to the end of July. Despite the dip, that rate isn't far below the kind of growth levels recorded in recent years that have left many renters under financial strain though.

"Over the past five years rents have risen by almost 40% which is quite an extra burden for renters. It's about an extra $180 per week nationally, and in some cities and some regions it's double that. So it's definitely added pressure for those renters," says Ezzy.

What's causing the slowdown?

In the midst of the recent rental price boom the considerable increases recorded in many parts of the country were attributed to factors like limited rental stock and increased competition. But there's evidence that both sources of pressure are easing.

"We have moved past the peak in net overseas migration and vacancy levels are, generally, starting to ease off a little bit," Ezzy says.

"So the demand that was driving - in some cases - double digit rent growth, just isn't there anymore to continue to push rents higher."

Ezzy also says that renters have been actively finding ways to cut back on their costs. For some, that's been to make the move out of the cities to more affordable markets in regional areas or in satellite towns, while others have opted to create share houses and take on new housemates.

Capital cities lead drop-off

Drilling down, CoreLogic's research suggests that the capital cities are leading the slowdown, with rents dropping in Brisbane, Hobart and Sydney throughout July and remaining steady in Canberra and Darwin.

"It's not surprising that a few of the capitals have dipped into the negative territory. Sydney and Brisbane had been benefiting from a strong level of net overseas migration at a time when vacancy levels were at record lows, which really pushed rental growth significantly higher," Ezzy explains.

The trend hasn't been uniform though, with Adelaide, Melbourne and Perth all notching rent increases over the month of July.

"One thing that's still quite interesting is the multi-speed effect that we are seeing. Mid-sized capitals like Perth and Adelaide are still recording quite strong growth when the rest of the country is coming off the boil - and that's both in rental values and housing values," Ezzy says.

Rental price growth in regional areas has also started to taper off, though not quite to the same degree as in the major cities just yet.

Ezzy notes that part of the reason for this is as a direct result of the recent migration to the regions and commuter cities by people looking to escape from the cost of renting in capital cities.

"During the past couple months we've seen people look that little bit further afield for more affordable rentals in commutable markets like the Illawarra or Newcastle.

"That caused a bit of a stronger re-acceleration in rents in commuter markets at the beginning of the year, although that trend has started to ease off as well, similar to what we're seeing in the capitals."

Could rent prices start to fall?

With many renters paying hundreds of dollars more each week than they were just a few years ago, some will no doubt be wondering whether prices could start falling in a meaningful way.

Unfortunately for tenants, Ezzy says that while growth rates are likely to continue to head back towards more normal levels, any substantial falls are unlikely for now.

"Generally speaking, we do expect that the pace of growth will continue to ease and come back down to that more normal 2-3% per year level. Whether we see any declines in rents beyond the normal monthly volatility is a little hard to say though.

"Things that might affect that trend are whether we see an uptick in overseas migration, or any pullback in investor interest in the market, or the opposite of that if we see investors selling off their properties."

Get stories like this in our newsletters.