Corelogic’s national rental index has flatlined over the past two months, demonstrating the weakest rental market conditions since the early phases of the pandemic when rents briefly trended lower. Rental demand weakens amid slowing migration and affordability constraints forcing a change to household formation. 

Rental trends can be highly seasonal- with rental growth typically slowing through the middle and end of the year- the annual trend is also slowing. Nationally the annual pace of rental growth peaked at 9.7% over the 12 months ending November 2021, which was a series high. The annual growth trend has since eased back to 7.2%, the lowest annual growth rate since the 12 months ending May 2021.

Despite the slowdown in annual rental growth, most cities are still recording an annual rental trend that is well above the pre-COVID average. Hobart, being the only city bucking this trend. 

Perth and Adelaide continue to show the strongest rental growth with 11.6% and 8.4% respectively. However, these cities are showing a clear slowdown in the past three months where Perth increased by only 0.7%.

Sydney fell in all 3 months to August 2024 (-0.3%), as did Hobart (-0.3%) and Canberra (-0.5%).

There are several factors at play when it comes to slower rental conditions.

Affordability– Between March 2020 and June 2024 Australian wages (based on the wage price index) increased by 12.7%, while rents increased by 36.1%. According to Corelogic’s rental affordability metrics, a household on the median income would be spending 32.2% of their gross annual income to pay the median rent, a record 20-year high.

Household formations– RBA data shows that average capital city households have reduced in size from around 2.63 residents per dwelling to 2.53, as group households split during the pandemic. Smaller households meant higher rental demand. Households are now becoming larger again- with group and intergenerational households becoming popular which should logically decrease rental demand

Investor activity on the rise– Lending to Investors has risen by 10.7% to just over 30.2% to June, Investors play a key role in delivering rental supply to the market which may be supporting an alleviation in supply-side pressures.

Home-building catch-up– Building approvals, peaked in the June quarter of 2021 at 66.4k, due in part to the HomeBuilder grant. Due to subsequent material shortages, cost blowouts, and capacity constraints there has been some delay in completion- which has likely resulted in a prolonged period of renting for many of those waiting for their new home to be completed. As more of these home finish rental demand associated with building delays may diminish