Highly tense and difficult is the situation if you're a rental tenant at the moment - or you're looking for a property to rent.

Based on Census 2021 figures, 31% of Australian households (or 2.9 million households) are tenants and are thus experiencing a troubled battle.

Vacancy rates (the number of properties available to rent) in our largest cities have dipped sharply since COVID hit in early 2020 - and vice versa for asking rents.

But how and why has this happened?

And for the people struggling in rental situations, is there any hope for the future?

What is going on with Australia's rental market?

What we're currently seeing in Australia's rental market is based on an age-old issue we've experienced across rental and owner-occupier real estate.

Put simply, there are not enough properties to satisfy Australia's growing population - and more recently, shifting household numbers, including migratory trends, are not helping this issue.

Pop a panicky pandemic into the mix, and later, months of rising rates alongside an undaunted inflation, and the current rental situation is what you can end up with.

In a brief published in November 2022, the Australian Housing and Urban Research Institute (AHURI) commented that Australia needs "sufficient new housing to house the nearly one million new households - or an 11.9% increase - formed between the 2016 and 2021 Census."

The reason for this is that the number of new residential dwellings hasn't kept up with the number of new households formed between 2016 and 2021, says AHURI.

The number of new housing developments is also declining, thanks in large part to supply chain problems and worker shortages during COVID.

Plus, there's a severe shortage of social housing for those lacking the strong incomes now needed to rent.

Finally, interstate and international migration numbers are generally rising, if not markedly shifting and changing, between suburban and regional areas and overseas.

NB rental demand and prices may spike further this year as 50,000 or more young people from China return to Australian universities after their government lifted COVID face-to-face learning restrictions in January.

Then, a rising number of government investor regulations - including tax issues, fees, and charges, along with a strong shift in favouring tenants'  rights over landlords - is resulting in high numbers of investors leaving the market for more incentivised real estate climes.

Rental properties: where are you?

Generally speaking, a healthy vacancy rate is 3% - but renters won't find anything near this figure in our largest cities, or even our smaller regional cities.

As of January 2023, every capital city in Australia offered vacancy rates of below 2%, with Canberra having the highest score of 1.6%, according to SQM Research.

Meanwhile, Sydney, Melbourne, and Brisbane are offering vacancy figures of just 1.3%, 1.2%, and 0.8% respectively.

Vacancy rates in our larger regional cities and towns can sometimes offer better rates but these figures are still well below the healthy 3% figure.

Geelong, west of Melbourne, now has rates of 2.3%; Newcastle, south of Sydney, offers a vacancy figure of 1.2%; and Toowoomba, west of Brisbane, just 0.6%.

"It all has to do with supply and demand, and at present, the competition for rental accommodation is high, with tenants having very little choice. and with the number of available rentals trending lower month by month," Metropole's Michael Yardney commented in June last year.

Lower rental prices: where are you?

CoreLogic's Q4 2022 Rental Review continued to feature bad news for renters.

Sydney's median weekly dwelling rent - and it's crucial to note this is a median figure for all properties across Sydney - increased 11.4% in 2022, to reach $679.

Brisbane can boast the highest, capital city annual rental growth with a 13.4% jump to $588.

Meanwhile, Canberra is now the most expensive capital city in the country for renters, with tenants paying a median weekly figure of $681, after a 4.3% annual rise.

Surprisingly, Melbourne remains Australia’s most affordable capital city for rentals at $507 per week, followed by Adelaide ($518 per week), Hobart ($552 per week) and Perth ($553 per week).

While CoreLogic noted the pace of such rental growth had slowed for the second consecutive month, this trend could simply be due to seasonal changes in the rental market around Christmas and the summer holidays.

Investors: where are you?

Investors have found good reasons to sell their properties in recent years, with this trend hitting well before COVID did.

"It all started in 2017 when the Australian Prudential Regulation Authority restricted funding to investors, meaning the number of investors providing rental accommodation decreased," Mr Yardney said.

"Then, during the pandemic era of 2020 and 2021, many investors sold up, owner-occupiers purchased their properties - further decreasing the stock of rental properties - ... and the average household size got smaller (in favour of smaller apartments)."

An Australian Broker article last month goes further, with MCG Quantity Surveyors' managing director, Mike Mortlock, explaining that incentivising investors to re-enter the market could increase property supply for renters.

This factor is particularly important given private investors make up around 84% of Australia’s available rental accommodation, according to Mr Mortlock.

He now proposes five strategies to re-engage investors:

• reduce investor financial regulations
• offer investor construction grants, and reinstate and increase depreciation benefits
• reduce legislation favouring tenants' rights over landlords, including "onerous" changes around the ability to end tenancies and tenants’ rights to make structural changes to properties
• incentivise investors to continue engaging with regional and rural areas as well as city-fringe suburbs

Rental tide turn: where are you?

AHURI's brief pointed to clear goals to help turn the tide of the Australian rental struggle including:

• building more well-located, rental dwellings that are affordable to people on low incomes
• targeting the federal government's Commonwealth Rent Assistance (CRA) - a non-taxable income supplement for eligible low-income renters - and increasing these payments more effectively to "to better align with rents in local areas" 
• improving connectivity between outer suburban and satellite city housing markets and job-rich areas
  

CoreLogic meanwhile took its usual, more subdued approach to the property market, commenting in January that the 2023 rental market's outlook is mixed.

CoreLogic Head of Research and report author, Eliza Owen believes this unclear forecast can be largely attributed to an increase in demand from international visitors, during a time of weak confidence among property investors.

"While a slowdown in the pace of rent rises could be a sign that the rental market is starting to shift, it’s not great news for tenants just yet," Ms Own explained.

"Rents are still rising in most capital cities and regional areas with vacancy rates low.”

MCG Quantity Surveyors' Mr Mortlock also had similar subdued thoughts on the rental market in the short-term.

“One per cent vacancy rates, monthly rent increases of 2%, and long lines at rental open homes aren’t going away anytime soon, if we stay on the current path," he said.

“But I applaud politicians and other groups for finally recognising we are in a crisis – albeit one that could have been eased in part by implementing the right policies years ago."

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