The demand for rental properties in Australian cities like Melbourne and Perth continues to soar as the rental markets grapple with unprecedented pressures.
With low vacancy rates, rising rents, and shifting population dynamics, both cities highlight renters’ challenges in 2024 and beyond.
This blog explores the current trends, factors driving demand, and the shared challenges of these two rental hubs.
Let’s Get Straight To The Point
The rental markets in Melbourne and Perth are under intense pressure due to low vacancy rates, rising rents, and a lack of supply. Melbourne’s vacancy rate is 1.3%, and rents have reached record highs due to post-COVID urbanisation and reduced investor activity.
Perth faces similar issues, with its 1.4% vacancy rate driven by population growth and demand from booming industries. Both cities struggle with affordability challenges as rents outpace wage growth.
A lack of new housing developments and investor sell-offs exacerbate the supply-demand imbalance. Solutions include incentivising investment, boosting affordable housing construction, and protecting tenants to create more sustainable rental markets.
Melbourne Rental Market
High Demand And Low Supply
Melbourne’s rental market is experiencing a significant supply-demand imbalance. The vacancy rate currently stands at an alarmingly low 1.3%, indicating a severe shortage of available rental properties.
Post-COVID lifestyle changes have led to a surge in demand, particularly in Melbourne’s inner suburbs. As workers return to the city due to large employers reversing work-from-home policies, competition for rental properties has intensified.
Adding to the pressure, many property investors have exited the market. Higher borrowing costs and stricter compliance laws have made it less attractive to retain investment properties, further straining the already limited rental stock.
Record-Breaking Rents
The scarcity of available rental properties has driven rents in Melbourne to unprecedented levels. The weekly median asking rent for houses has climbed to $580, representing a $30 increase compared to the previous year.
Similarly, the median rent for units has risen by $30, reaching $550. These significant price hikes highlight the intense competition among tenants facing a limited supply of homes.
The ongoing imbalance between supply and demand continues to fuel upward pressure on rental prices.
Factors Contributing To Demand
Several factors contribute to Melbourne’s soaring rental demand:
- Lifestyle Changes: A post-pandemic resurgence of urban living has drawn individuals and families back to the city. The vibrancy and convenience of Melbourne’s inner suburbs are significant attractions.
- Employer Policies: As businesses return to in-office work, professionals relocate closer to their workplaces.
- Reduced Rental Stock: Due to regulatory and financial pressures, Investor sell-offs have decreased rental properties’ availability.
These combined elements have created a highly competitive rental landscape, where tenants often face challenges securing affordable and suitable accommodation.
Perth Rental Market
Strong Demand Persists
Perth’s rental market mirrors Melbourne’s in terms of tight competition. While the city’s vacancy rate recently increased slightly to 1.4% after hovering below 1% for over two years, the market remains under pressure.
Perth’s population growth is a significant demand driver, with interstate and international migrants adding to the competition. The rental market is particularly strained by the influx of workers drawn to Western Australia’s booming mining and resources sectors.
These industries have revitalised the economy and attracted skilled labour, further fuelling demand for housing.
Rental Price Trends
Rental prices in Perth have also seen steep increases. As of October 2024, the median weekly rent for houses is $650, while units are $612. Year-on-year, rental prices have risen by approximately 10%, reflecting the persistent demand and limited supply.
Although recent months have shown signs of stabilisation, with rental price increases slowing to around 2%, affordability remains a significant concern for tenants. In response to rising costs, many households have begun sharing rental expenses or increasing their household size to manage financial strain.
Market Dynamics
Despite Perth’s relatively small rental market, the challenges it faces are profound:
- Stabilising Prices: The recent slowdown in rental price growth suggests the market may be reaching a plateau. However, this offers little relief for tenants already burdened by high costs.
- Creative Tenant Strategies: To cope with rising rents, many tenants enter into longer leases to secure current rates or combine resources with others to share living expenses.
Common Trends In Both Cities
Affordability Challenges
Affordability remains a significant issue for renters in both Melbourne and Perth. Escalating rents and broader cost-of-living increases have left many tenants struggling to make ends meet.
To mitigate future rent hikes, some renters opt for longer-term leases as a protective measure. For individuals and families with tighter budgets, these affordability challenges often necessitate location, property size, or amenities compromises.
The financial strain is particularly severe in areas where rent increases have far outpaced wage growth.
Supply Issues
A significant factor behind the rental crisis in both cities is the lack of new housing developments. Limited construction of apartments, townhouses, and other residential properties has exacerbated the supply shortfall.
The issue is further compounded by delays in building projects and the high costs associated with new developments. The undersupply of rental properties creates a domino effect, leading to increased competition, rising rents, and fewer tenant options.
Addressing this issue will require a multifaceted approach, including incentivising developers and streamlining approval processes.
Government Intervention Needed
Calls for government action to address the rental crisis are growing louder. Proposed measures include:
- Incentivising Investment: Encouraging property investors to remain in the market by reducing compliance burdens and offering tax benefits.
- Boosting Development: Supporting the construction of affordable rental housing through subsidies and grants.
- Tenant Protections: Implementing policies to safeguard renters from excessive rent increases and unfair evictions.
Melbourne and Perth need robust interventions to alleviate the pressure on their rental markets and help struggling tenants.
Conclusion
The rental markets in Melbourne and Perth exemplify the challenges facing tenants in Australia’s major cities. Both markets are characterised by high demand, low supply, and rising rents, creating a competitive environment for renters.
While there are signs of stabilisation in Perth’s market and ongoing vibrancy in Melbourne’s inner suburbs, the overall landscape remains challenging. Addressing these issues will require coordinated efforts from governments, developers, and industry stakeholders.
Increasing housing supply, supporting investment, and protecting tenants may make more balanced and sustainable rental markets in both cities possible. Until then, renters in Melbourne and Perth will need to navigate these pressures with creativity and resilience.
Frequently Asked Questions
Which Areas In Melbourne Are In The Most Demand For Rental Properties?
Popular areas include inner-city suburbs like Southbank, Docklands, and Carlton for students and professionals, as well as family-friendly suburbs like Box Hill, Glen Waverley, and Brunswick.
Which Areas In Perth Have High Rental Demand?
Suburbs like Subiaco, Fremantle, Cottesloe, and Joondalup are in demand due to their proximity to the CBD, beaches, and lifestyle amenities.
What Types Of Properties Are In Demand In These Cities The Most?
Apartments are popular in Melbourne’s CBD and inner suburbs, while detached houses are more sought-after in Perth’s family-oriented areas. Both cities also see high demand for modern, low-maintenance properties.
Is It A Good Time To Invest In Rental Properties In Melbourne Or Perth?
Yes, both cities have strong rental markets. Melbourne offers higher capital growth potential, while Perth provides better rental yields due to lower property prices.
What Is The Government Doing To Address Rental Shortages?
Both state and federal governments have introduced measures to increase the housing supply, fast-track building approvals, and offer incentives for property developers and landlords to create more rental opportunities.