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Record rises in rents push tenants to breaking point

Millions of renters are doing it tough due to the longest stretch of rent hikes on record, with signs that some tenants are now unable to afford the higher prices.

My Housing Market chief economist Andrew Wilson said his latest figures have tracked the meteoric rent hikes, but there are signs of an easing for units in Sydney amid affordability constraints.

“We’re seeing some easing in unit rents in Sydney over June,” Dr Wilson said.

“What I think we’re seeing here is when rents have risen by nearly 40 per cent over a year we get to the point where tenants can’t afford to keep paying more.”

However, Domain’s latest rent report, published on Thursday, shows rents across Australia’s capital cities rose 2.7 per cent over the June quarter – compounding the same rise over the March quarter.

Melbourne, Sydney and Brisbane have racked up the longest stretch of continuous rent growth in Australian history, according to Domain’s chief of research and economics Nicola Powell.

“The colliding mismatch of heightened demand and supply side constraints has continued to place pressure on house and unit asking rents across Australia,” Dr Powell said on Thursday.

“This has resulted in records being set in most capital cities.”

Critical lack of supply

Dr Powell said a faster-than-expected return of international students after COVID-19, as well as tenants struggling with the financial barriers of buying a home, are key factors driving rents higher.

Domain estimates that roughly 127,000 additional dwellings would be needed this financial year alone to meet demand – something that’s unlikely as the construction sector struggles.

Vacancy rates rose to 1 per cent over the June quarter – the highest since August 2020.

“With a number of factors at play, there needs to be a seismic shift in supply to address the challenges being faced,” Dr Powell said.

“In fact, our research shows that [there needs to be] more than double the rental listings needed today to create a balanced rental market.”

Sydney remains the most expensive city for renters, according to the latest Domain data, taking the gong as the priciest for both homes and units for the first time since 2018 as rent increases continue to accelerate.

Melbourne, meanwhile, is still the most affordable city in which to rent a house – though there have now been a record seven consecutive quarters of price increases, with unit rents at a record high.

Brisbane also saw rent growth accelerate over the June quarter to a fresh record high, Domain said, noting that prices for units have risen at the fastest pace in the city’s history.

Affordability pause

Dr Wilson said the basic fact is that Australia does not have enough available rental properties for the number of people who want to live in them.

There are, however, signs that rent growth is starting to ease as tenants struggle to afford higher prices in major capital cities.

“Tenants can’t find that extra money month by month to afford the increases we’ve had,” he said.

“These are still very high numbers though, and there’s no logical reason that there would be any real relief from rent increases.”

Higher interest rates have played a role in pushing up rents, Dr Wilson said because he expects that landlords have sought to recover the costs of higher mortgage repayments from tenants.

The latest RBA meeting on Tuesday did not increase interest rates as the Reserve Bank waits for fresh data on how inflation is changing in 2023.

Most economists still expect at least one – if not two – more rate hikes, but there is consensus that the pause indicates central bankers are nearly finished, signalling relief for home owners.

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