Why We Can Expect Slower Rent Growth in 2024

Why We Can Expect Slower Rent Growth in 2024

Rent growth has been on a steady climb for 35 months nationally, reaching an all-time high in July. There has, however, been a noticeable easing in rent increases over the past four months. “Days vacant” and rental enquiry levels have normalised, even decreased in some areas, and application numbers have declined since the July peak.

So, what does 2024 hold for the rental market?

Three Factors to Watch

• Interest Rate Changes: Most of the major banks are predicting a decline in the cash rate in 2024. Lower interest rates often stimulate investment in housing, increasing the supply of rental properties and consequently easing rent growth.

• Slowing Income Growth: Throughout the pandemic, income growth surged due to fiscal stimulus and tight labour market conditions. As income growth slows, renters may reconsider their housing choices, possibly opting for shared accommodations. This could redistribute demand and contribute to slowed rent growth. We are seeing this trend regularly, groups of three, four and five renters applying for properties that have historically rented to couples or colleagues/friends. The same number of renters remain in the market as a segment, however, they’re applying for fewer properties.

• Rental Affordability: Rent costs have reached an alarming 30.8% of national income as of March 2023. The stretched affordability limits how much further rents can rise before renters make significant changes, like moving to more affordable areas.

The Broader Impact

Several market indicators point to an impending slowdown in rent growth. Cities like Canberra are already seeing a decline in rents, and other areas like Hobart and Melbourne may soon follow suit. This is further supported by internal migration trends; renters are moving to more affordable areas, thus reducing demand in pricier markets.

The Need for Reform

While the expected slowdown in rent growth is noteworthy, it's not a cure-all for rental affordability challenges. Ambitious initiatives, like the Federal Government aiming to build 1.2 million homes over the next five years, can go a long way in making rents more manageable. As we’ve discussed in this blog previously - supply is fundamentally the most significant factor in this issue.

The Victorian State Government released its “Long-term Housing Plan” this week, which included a raft of initiatives designed to ease the pressures on housing. 

We welcome many of these proposals - it is, for the most part, a positive and meaningful policy set. 

That is, however, contingent on the delivery of the promised outcomes. This is a policy area that, at both the Federal and State level, governments have disappointed the Australian people in recent decades Let’s hope this time it is different.