Easing Rental Market Brings Relief to Tenants and Positive Signs for Inflation Outlook
In a positive turn for tenants and economic observers alike, the once relentless surge in rental prices in Sydney and Melbourne is showing signs of slowing down. This trend, evident from recent data, heralds a period of potential stability in the rental market, offering a reprieve to renters and contributing to a more favourable inflation outlook.
Mark Matthews, a business consultant with a three-bedroom investment property in Christies Beach, Adelaide, exemplifies this shift. Despite the opportunity to increase rent this year, Matthews opted to maintain the current rate of $410 per week. His decision, driven by a long-term, mutually beneficial relationship with a reliable tenant, underscores a broader trend: landlords are becoming more sensitive to tenant affordability. Matthews points out that the rent for his property remains $100 below the suburb’s average, reflecting a conscious choice to avoid further financial strain on tenants.
This moderation in rental price growth is not confined to Adelaide. Data from Domain’s quarterly update for June reveals a similar pattern across major Australian cities. House rents in Sydney have flatlined for the first time in 18 months, while Perth saw no change in house rents for nearly three years. Notably, Hobart experienced a decline in house rents over the quarter. Unit rents have also stabilized in Melbourne, Perth, and Hobart, with reductions observed in Canberra and Darwin.
Domain's chief economist, Nicola Powell, highlights the significance of this trend, noting that it marks the weakest June quarter outcome in several years for many cities. This slowdown is corroborated by consultancy SQM Research, which reported a notable decline in capital city advertised rents over the past 30 days—the largest monthly percentage drop since April 2020.
These developments are crucial for the Reserve Bank of Australia’s (RBA) inflation strategy. Lower asking rents can ease inflationary pressures, contributing to a more stable consumer price index. While Australia’s annual inflation rate rose to 4% in May, driven by a 7.4% increase in rental inflation, the deceleration in rent growth offers a glimmer of hope for future inflation moderation.
ANZ senior economist Blair Chapman cautions that the full impact of lower asking rents will take time to materialize due to the typical one-year lease cycle. Nevertheless, the current slowdown, despite persistently low vacancy rates, is a promising sign. Generally, a low vacancy rate would suggest strong rental growth, but affordability constraints are clearly influencing market dynamics.
Nicola Powell echoes this sentiment, emphasizing that budgets are increasingly stretched, limiting tenants' capacity to absorb higher rents. This affordability barrier is reshaping the rental market landscape, pointing to a more balanced year ahead.
In conclusion, the cooling of the rental market in Sydney, Melbourne, and other major cities signals a much-needed relief for tenants. This trend also bodes well for the broader economic outlook, potentially easing inflationary pressures and fostering a more sustainable rental market in the coming months. As the tide begins to turn, both tenants and landlords can anticipate a more stable and manageable rental environment.
