Rental vacancy rates remain low as first home buyers return to renting, new research shows

New data on rental vacancy rates reveals the Australian property market has tightened up over the past year, but certain areas such as Melbourne have seen an influx of property which will keep rents subdued in the next 12 months.

New research from SQM shows while vacancies rose by 27% during December on a monthly basis, the national vacancy rate is up by 0.2% to 2.2% compared to the previous December.

SQM managing director Louis Christopher says the data indicates while the market is certainly tight in most cities, a small number of areas have maintained a strong supply in housing stock.

“We’re pretty cautious about deriving too much from the December result. Tenants heading into Christmas generally stop looking, so it’s pretty clear to us that this is merely a seasonal impact and we expect that to go down.”

But despite the seasonal variables, Christopher says anything under 3% is considered relatively tight.

“It’s still tight here. This was a slight increase from last year, regarding the national result, but if you look into the cities it’s more interesting. Melbourne is now recording a vacancy rate of 3.6%.”

“It’s obvious now that Melbourne is not really suffering from a shortage of real estate. It’s certainly not an oversupply either, but we note that public developments are starting to hit the market now, and rents are slowing down there. In fact, we think rents will be mostly flat in Melbourne this year.”

The report shows rental growth in Melbourne will remain fairly flat, between 0-2%, with vacancies rising from 2.8% to 3.6% over the year to December.

Hobart and Adelaide recorded the lowest amount of month-on-month growth at 0.3%, rising to 1.3% and 1.4% respectively. Darwin recorded the largest growth of 0.6% over the month, reaching a vacancy rate of 2.8%.

All capital cities recorded increases over of the year, except in Sydney and Perth. Sydney’s vacancies dropped by 0.1% in December to 1.7%, with Perth falling by 0.6% to 1.5%. Christopher expects rental price growth in these markets to be more robust, especially in Sydney, which will record growth of 5-7% over the year.

Nationally, prices are expected to rise between 3-5% over the year.

Christopher says the pressure in some markets will be maintained by a swing of would-be buyers abandoning a decision to purchase and instead focusing on renting to increase their savings.

“The demand has changed from renting to owning, with a big swing in 2009 and 2010. But in the last six months, I would argue that we’ve swung back into a renting market.”

“Affordability is a factor for many people, and rising interest rates have made loans harder to service. These two factors have contributed to a situation where there are less first home buyers in the market and more renters.”

As a result, Christopher says he would be surprised if the national vacancy rate breached 3% over the next 12 months.

“In some cities, supply has been able to meet demand. But the market is still quite tight in many other areas.”