The rental market in Melbourne is experiencing unprecedented challenges in 2023. The primary factors driving this surge in rental costs include a tight balance between supply and demand, post-pandemic population movements, and broader economic influences.
In Melbourne, rent prices for new tenants have increased by 14.6% over the year to September 2023, a notable rise compared to the annual growth of 14% in the previous quarter and 10.3% in September 2022.
This increase is indicative of the broader trend in Australia’s rental market, where demand pressures, including net overseas migration and population growth, continue to drive rental prices upward as described by MacroBusiness.
As of the September quarter of 2023, the median rent in metropolitan Melbourne has reached $530 per week, reflecting a 2.9% rental yield. This increase in rent is consistent with the overall trend of rising rental prices, as seen in different parts of Melbourne and across various property types.
Market Dynamics: Demand Outstrips Supply
Melbourne’s rental market in 2023 is marked by an escalating demand, a trend partly driven by overseas migration and a general population increase.
CoreLogic’s data reflects a continuous surge in demand, particularly for unit rentals, keeping the growth rate well above long-term averages despite recent softening. This surge occurs even as many tenants are reaching their affordability limits, indicating a robust and sustained demand in the Melbourne rental properties.
This surge occurs even as many tenants are reaching their affordability limits, indicating a robust and sustained demand in the rental market.
Decline in Rental Listings
Compounding the increasing demand is a massive shortfall in rental listings. The national shortfall is about -32.4% or 47,500 listings below the previous five-year average, as of June 2023.
This shortage is not confined to Melbourne but is a national trend, with vacancy rates slightly easing yet remaining well below the pre-COVID decade average. Melbourne leads in the pace of quarterly rental growth among Australian capital, highlighting the acute impact of this shortfall in rental availability.
Post-Pandemic Urban Resurgence
Return to Cities Post-COVID
The lifting of COVID-19 restrictions has spurred a significant resurgence in urban living, especially in Melbourne’s inner-city areas. The pandemic initially drove a migration away from city centers, but with restrictions easing, there’s been a noticeable rebound.
“This return has significantly influenced rental prices, particularly in the apartment sector, which is experiencing a dramatic increase in demand and consequently, rental prices.”(CoreLogic Australia).
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Reduced Vacancy Rates
Accompanying this urban resurgence is a marked reduction in vacancy rates. Despite a national increase in the average household size as more renters form share houses to manage the rental burden, vacancy rates have not recovered to pre-pandemic levels.
With rents being 27.4% higher since the onset of COVID, equivalent to a $127 per week increase in median dwelling rent in Australia, the vacancy rates reflect a market still very much in demand. This reduction in available rental properties significantly contributes to the heightened rental costs in Melbourne’s market.
Economic Influences and Population Growth
Impact of Economic Factors
Melbourne’s rental market has faced several economic challenges in recent years. The city has endured the economic fallout of the COVID-19 pandemic, experiencing longer lockdowns than any other city globally.
Coupled with 12 consecutive interest rate rises and the lowest level of consumer confidence in decades, these factors have created a challenging environment for the property markets, including rentals (PropertyUpdate.com.au).
Despite these headwinds, the Melbourne housing market has turned a corner, with prices rising consistently for the last 10 months, up 4.5% since January 2023. This recovery in the housing market is reflected in the rental sector, where higher property values often lead to increased rents.
Population Growth and Migration
Victoria’s population, particularly Melbourne’s, is growing at record levels, with an increase of over 160,000 in the past year.
“This growth has been primarily driven by overseas migrants, putting additional pressure on the property and rental markets”(Urban Property Australia).
The increase in population, especially in urban areas, has heightened demand for rental properties.
Despite the Melbourne residential vacancy rate sitting at 2.4% and the low level of new dwellings completed, which is likely to be the lowest in seven years, the rental levels for both houses and units in Melbourne have increased by more than 10% over the past year, reaching all-time highs.
Additionally, factors like safety can influence where people choose to live. For insights on this, see which Melbourne suburb has the lowest crime rate.
National Rental Market Trends and Housing Market Values
Australia-Wide Rental Trends
Reflecting the low vacancy environment, rents across Melbourne have increased significantly. Over the year to September 2023, the weekly median rent for houses in metropolitan Melbourne rose to $550 per week, up from $500 a year earlier.
Rents for Melbourne units have also recorded strong rises, increasing by 13.6% over the year. This trend of increasing rents is evident across Melbourne’s regions, with the Inner region seeing a 13.8% increase, the Middle region a 12% rise, and the Outer precinct a 13.3% hike.
Correlation with Housing Market Values
Melbourne’s median house price has declined for seven consecutive quarters from its peak in December 2021. Despite this decline, the median house price remains above pre-pandemic levels. On the other hand, median unit prices in Melbourne have increased for the past two consecutive quarters, reaching their highest levels in 12 months.
This fluctuation in housing market values indirectly affects rental prices, as higher property values often lead to increased rents. This correlation between housing market values and rental prices is a significant factor in the high rental rates observed in Melbourne’s market.
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FAQs on ‘Why Is Rent So High in Melbourne?’
Will rent prices ever go down in Australia?
According to CoreLogic, a property data firm, there is an expectation for Australia’s rental growth to slow down by 2024. This forecast suggests a potential easing of the current high rental rates, offering a respite for renters.
Why is it so hard to find a rental in Melbourne?
Post-pandemic, vacancy rates have plummeted to very low levels across Australia, as reported by industry observations. This significant decrease in available rentals has made the rental market in Melbourne, and across the country, highly competitive and challenging for those seeking housing.
Why are landlords selling up in Australia?
Landlords in Australia are increasingly opting to sell their properties due to a combination of factors. These include rising taxes, tightening tenancy laws, and escalating interest rates, creating a less favorable environment for maintaining rental properties.
Why is Australia experiencing a rental crisis?
The rental crisis in Australia can be attributed to increased housing demand driven by population growth. Notably, overseas migration contributed to about a 1% annual increase in Australia’s population.
However, the pandemic-induced closure of international borders and the return of expats, with more leaving than returning, altered this dynamic, impacting the rental market significantly.