This article is from the Australian Property Journal archive
AUSTRALIA’S rental market boom has “well and truly passed the peak”, and affordability constraints, lower migration levels, and more investors coming into the market will continue to put the brakes on rental growth in 2025.
National rental growth slowed to 4.8% over last year after surging 8.1% in 2023, according to CoreLogic’s latest Quarterly Rental Review.
The result marked the smallest annual rental increase since the 12 months to March of 2021, when rents rose 3.6%. The 0.4% rise in rents in the December quarter, meanwhile, was the smallest Q4 change in rents since 2018;
“We’re well and truly past that peak of the boom in rents, and we’re starting to trend back towards what would be normal growth in rental markets,” CoreLogic economist Kaytlin Ezzy told Australian Property Journal.
“What that means for renters is that as that pace of rental growth eases, they’re going to have more of an idea of what they’re going to be paying moving forward, and a bit more stability and security in rental affordability.”
Renters have been battered in recent years, putting housing at centre stage in the lead-up to the upcoming federal election. Since the onset of COVID, rents have surged by 36.1% nationally, equivalent to a rise of $171 per week, or $ 8,884 per year at the median level.
As of September, renters on a median household income were spending about 33.0% of annual pre-tax income to service the median rent, the highest proportion since CoreLogic started tracking rental affordability in 2006.
Across the capitals, the majority of cities recorded a slowdown in rental growth over 2024, led by Sydney and Melbourne, which eased from 9.9% and 11.0% over 2023 to just 3.0% and 4.1% respectively last year.
The only capital cities to see increased momentum in rental growth were Hobart (6.0%), and Canberra (2.6%), off the back of falling rent values in 2023.
Further easing in rent growth in 2025
Sydney and Melbourne will be some of the weaker performers in terms of rental growth in 2025, while at the other end of the scale Canberra is set for further growth.
Ezzy said the same factors that have helped ease rent growth in 2024 are expected to further ease the pace of growth in 2025.
“That’s the normalisation in overseas migration, the uptick in the average household size – reversing some of that pre-COVID shrinkage that we saw as people ditched the roommate and set up the home office in the spare room – as well as some increased participation from investors helping to add to rental stock.”
Ezzy noted the rental growth is “still high” compared to the pre-COVID decade average of 2.0%.
“Rental affordability continues to be a significant drag on rental growth.”
“The net result has potentially seen some prospective renters delay their decision to leave the family home, while others have looked to form larger share households as a way of distributing the additional rental burden,” Ezzy said.
Houses are starting to outperform units in terms of rent value growth as a result. Houses recorded both stronger quarterly (0.6%) and annual rent rises (5.0%) compared to units (-0.2% and 4.2% respectively).
“As people start to form larger sharehouses, they might look at that extra $50 to $100 that they would spend on a house compared to a unit and give them the opportunity to take in that extra roommate and share that rental burden a little bit further.”
On the demand side, the easing in net overseas migration has been a factor in softer rental demand. Net overseas migration levels expected to normalise around pre-COVID decade averages by the 2027 financial year.
Meanwhile, on the supply side, the annual value of new investor lending increased by 26.3% over the year to September, suggesting a potential net increase in rental stock.
Together, these have supported an easing in vacancy rates over the year, from a low of 1.4% in November 2023 to 1.9% at the end of 2024.
