Australian Rent Crisis: Unit Rents Outpace Wage Growth Sevenfold

In a troubling trend for Australian renters, new data from Domain reveals that unit rents are escalating at a pace seven times faster than the growth in wages. The data paints a grim picture for those in the rental market, with a 26.1% increase in the asking rent for units in capital cities over the year to June. This starkly contrasts with the 3.6% rise in the ABS wage price index during the same period.

The situation isn't much better for those seeking detached houses either, with the median asking rent across the capitals rising by 11.5% last year, a rate more than three times faster than the increase in wages. While separate data from CoreLogic paints a somewhat less alarming picture, unit rents in Sydney, Perth, Brisbane, and Melbourne are still shown to be skyrocketing by more than 15%.

Matthew Hassan, a senior economist at Westpac, describes the situation faced by Australian renters as "extremely challenging." He attributes this to strong net overseas migration and a lack of supply in the housing market. "For renters, especially those on low or fixed incomes, it's an absolute disaster," he said. "There are very few alternatives available, and we're witnessing the severe effects of a significant housing shortage."

The vacancy rates in capital cities are below 1%, reflecting what Hassan calls "frictional vacancy rates," which only account for properties vacant when people are moving between homes. Looking ahead, he doesn't see any immediate solutions to this issue. "We desperately need an increase in rental supply," he said, "but there's typically a significant delay in supply response and it seems to be taking even longer at present."

The current number of apartments approved for construction is now at levels last seen in 2012. This decline comes at a time when Australia is experiencing record net overseas migration, largely driven by international students. After an unprecedented population increase of 500,400 in 2022, the 2023 federal budget forecasts a record 1.5 million net overseas migration over the five years to 2026-27. This would result in a population increase of 2.18 million – equivalent to five times the size of Canberra or the entire population of Perth.

Most of this growth is expected to occur in Victoria (Melbourne) and New South Wales (Sydney), where apartment approvals have dropped the most. With rising rental demand and dwindling supply, the rental market is set to tighten further, causing rents to soar even higher.

This trend is particularly concerning for those looking to buy their first home or invest in property in Australia. The Albanese Government's record immigration is exacerbating the issue, causing rents to surge and placing severe financial strain on lower-income households. This could potentially lead to an increase in homelessness as housing becomes increasingly unaffordable.

The question remains: where will these record numbers of migrants and students live when housing is already in short supply? The burden of this 'Big Australia' immigration policy falls heavily on renters and lower-income earners. This presents a significant challenge for those looking to buy an investment property or seeking help buying their first home. The need for investment property support and strategies on how to invest in property in Australia has never been more critical.

We don't offer financial or legal advice but we do refer you to professionals who will work with you and advice on your personal circumstances - borrowing capacity and how an investment property will look like in your situation .