Australia's red hot rental market is at last starting to cool (2024)

The Australian rental market could be about to ease on the brakes as prices stagnate for the first time in four years, property analysts say.

The latest figures from CoreLogic show national rent growth only increased by an average of 0.1 per cent in the 12 months to July, compared with highs of nearly 40 per cent at its peak.

It is the first positive sign Australian renters have received since 2020, when rental prices began to surge and demand reached record highs.

CoreLogic executive research director Tom Lawless said it was a strong indication Australia's rental market was beginning to cool.

"Although the pace of growth is slowing, it's doing so from an extremely high base," he said.

"Two years ago our national rental index was rising at the annual pace of 9.5 per cent, slowing to 8.6 per cent a year ago and 7.8 per cent over the past 12 months.

"On a more granular monthly basis, the 0.1 per cent rise in rents through July was the smallest increase we have recorded since August 2020 as the rental market moved through a slump through the early months of the pandemic."

Michael Fotheringham from the Australian Housing and Urban Research Institute agreed rental prices had a long way to fall.

"It generally shows a slowing in the growth of rental prices, and that's not to say that there's no growth, nor is it saying that the rental prices are going down," he said.

"They're just going up less quickly.

"That is a positive, obviously, for many renters and that is generally a sign that things are heading towards a stable point."

Nationally, rent is up 7.8 per cent on average in the year to July, down from a peak of 8.6 per cent in April.

Representatives from the Reserve Bank of Australia said they were "very mindful" of pressure on rents continuing amid the housing shortage.

RBA governor Michele Bullock and others appeared before the economics committee at Parliament House in Canberra on Friday.

The RBA's assistant governor of economics, Sarah Hunter, told the hearing: "The pace of growth in market rents has slowed down in some markets in the last couple of months, so very recently ... it will take time [to] flow through to the stock of rentals."

She noted renters would see their leases lifted to match or approach the "market rate" when they were renewed annually.

"It's really, really challenging, and it's unfortunately because [housing] supply takes time to come online. You can't build new homes overnight," she said.

"Sadly, it's unlikely to resolve itself in the near term."

Peter Koulizos, from the University of Adelaide's Australian Centre for Housing Research, agreed the figures were welcome news at first glance.

"For existing and wannabe tenants, this is a very good sign," he said.

"It won't be as hard to secure rental property unless you are seeking social and affordable housing.

"Speaking with property managers, there isn't as much pressure on rents for properties that attract tenants on medium to high incomes."

What is causing the slowdown?

Mr Koulizos said new properties on the market had freed up the crushing demand felt on the Australian property market since the pandemic.

"Rental growth is slowing for one main reason — supply," he said.

"The supply of new rental property has increased, as builders and developers start getting back to normal after the restrictions due to COVID.

"Another indication is that lending to investors has increased and is now well above the 10-year average."

Mr Lawless said slowed overseas migration also cut demand for rental properties, as had some Australians' decision to embrace share houses.

"With such pronounced rental affordability pressures, it's likely more rental households are looking to maximise their tenancies to spread rental costs across a larger number of tenants," he said.

Mr Lawless said he believed the downward trend would continue.

"The recent pace of rental growth has been extreme, but unsustainable," he said.

"Renters generally don't have a great deal of elasticity in their ability to pay more rent.

"With more than 30 per cent being dedicated to rental payments, based on the median household income and median rent, it's hard to see rental growth maintaining a rate anything near what we have seen over the past few years."

Dr Fotheringham said he anticipated the slowing could be due to the Reserve Bank's policy settings on bringing down inflation, but it was also likely Australia's rental market had finally taken all it could.

Rental prices have increased far more quickly than wages over several decades now, but most acutely in the last two years," he said.

"Frankly, the market could have reached the point where it can't take any further growth, and people just can't stretch any further and the prices have maxed out."

Dr Fotheringham said while it was reassuring to see the market was slowing, it was important to remember regional areas were particularly struggling with high prices.

"A lot of the slowing of growth has happened in the major capitals, whereas in the regions the growth is still quite strong," he said.

"Those rental prices are still continuing to rise, and regions tend to have lower incomes on average than the big cities.

"This is a growing problem for our regional communities now — this is not just a big city problem."