According to the latest PropTrack rental report, rental prices in Australia's capital cities continued to rise in December 2023, with the average weekly rent jumping to $600 AUD, up $150 AUD from December 2021's average weekly rent of $450 AUD. The average weekly rent in suburban areas is now $500 AUD, up $80 AUD from two years ago.

This upward trend is primarily due to strong tenant demand and a severe shortage of leased properties. The number of people competing for rental properties is higher than ever before. Throughout the year, the available inventory of leased properties dropped to its lowest point in history, with the total annual leased property inventory declining by 4.7%, which is 30.2% lower than the 10-year average for December.

Cameron Kusher, Director of Economic Research at PropTrack, stated that the rise in rents is a result of sustained supply-demand imbalances, with population growth and bottlenecks in leasing supply exacerbating the issue. He pointed out that rapid population growth in Australia has intensified challenges in the leasing market because most immigrants to Australia become tenants. Given the persistent low stock of leased properties and significant demand for accommodation, there is an urgent need to increase housing, particularly in major capital cities.

The report also found that the national vacancy rate in Australia is 1.1%, with detached houses (0.9%) having a lower vacancy rate than apartments (1.7%). These figures are lower than a year ago and well below what is considered normal. Before the pandemic, the typical rental vacancy rate in Australia was around 2.5%, highlighting the tightness of market conditions. With limited new leasing supply and strong rental demand, it is expected that rental vacancy rates will remain low.

Among the capital cities, Perth saw the highest rental growth, rising by 20% to a median of $600 AUD per week by December 2023. Perth has the lowest vacancy rate among all capital cities, standing at only 0.73%, second only to Adelaide, with a vacancy rate of 0.69%.

Melbourne's average rent increased by 18.3% to $550 AUD, further pressured by reduced leased property supply. The report states that new leased property listings are 14.9% lower than in December 2022.

Sydney's rent rose by 16.7% to a median of $700 AUD per week, while Adelaide's median rose by 12.5% to $540 AUD, Brisbane's median rose by 9.1% to $600 AUD, and Darwin's median rose slightly by 1.7% to $590 AUD. Canberra's average rent remained unchanged at $610 AUD.

However, Hobart's average rent experienced a 4.8% decline to $500 AUD. Despite a slight increase in vacancy rates in the city over the year, it remains at only 1%, indicating a highly constrained market.

The report also found that as rental growth in many markets exceeded house price growth, gross rental yields have increased. In December, the national rental yield rose to 4.3%, the highest level since November 2020. Apartment rental yields are now at their highest level since September 2019, at 4.8%, while detached house rental yields rose to 3.8%.

Despite an increase in investor loans in 2023, indicating investors are returning to the market, many investors are still selling properties, and the investment rebound is not significant enough to significantly improve leasing inventory levels.

The national average rent in Australia rose by 11.5% over the past year to $580 AUD per week, but this growth rate is lower than the 15.6% in 2022. Only the suburban areas of Sydney, Melbourne, Perth, and Western Australia saw growth rates in 2023 exceed those in 2022.

Rental prices are expected to continue rising in 2024, but affordability limits the extent to which landlords can raise rents, especially in suburban areas, which may slow the growth rate. Although rental prices are expected to further increase, the pace of rental price growth in 2024 is expected to slow. In some smaller capital cities and suburban markets, rental growth is expected to further decelerate, or even see rental declines.