Why it’s about to get even harder finding a place to rent in Australia

It’s harder to find a place to rent than it’s been in 15 years. And an added stress is likely to make it even more tough on Aussies looking for somewhere to live.

For almost two years, Australia’s international borders were largely closed. International tourism more or less ceased to exist and net overseas migration went into reverse, as Australians and temporary visa holders left the country.

Despite the largest net exodus of people out of the country since World War I, a rental crisis began to unfold. Between January 2020 and January 2022, when borders reopened, the national rental vacancy rate fell from a healthy 2.1 per cent to just 1.3 per cent, the lowest level in 15 years.

Despite more than 365,900 temporary visa holders in categories likely to require housing leaving the country in net terms between December 2019 and December 2021, Australia managed to have a rental crisis pretty much all on its own.

While there are a long list of factors that have contributed to this outcome, including changed internal migration patterns and the shift toward the work from home lifestyle, arguably the major driver of increased demand was the decreased size of Australian households as more and more people sought out their own space.

To put this increased demand into perspective, between August 2009 and March 2020, national asking dwelling rents rose by 22.5 per cent, according to data from research firm SQM Research.

Yet in a small fraction of that time, between March 2020 and January 2022, national asking dwelling rents rose by 14.3 per cent.

More Aussie households and the shrinkage factor

In 2016, the census recorded that the average household size was 2.57 people. As of the latest data released last week by the RBA, that has now dropped to 2.47 people per household.

This trend has continued throughout the data for 2022 so far, indicating that it is not solely the direct impact of the pandemic driving this trend toward the creation of new households.

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Australia’s average household size is shrinking, meaning there are more people out there looking for a space of their own to rent.

According to an estimate from Grattan Institute economic policy program director Brendan Coates, this change in the average size of Australian households has led to demand for an additional 400,000 homes.

While some of these households have purchased homes of their own, a sizeable proportion have likely joined the ranks of the nation’s renters.

Given the ongoing issues with housing affordability and the median age of first home buyers now being closer to 40 than to 30, according to some surveys, it is perhaps unsurprising that the burden of these additional households has fallen disproportionately on the nation’s rental market.

To what degree this factor will continue to grow domestic demand for rental accommodation in a vacuum remains to be seen and it is unclear how the rising cost of living could end up tempering this source demand.

However, with the reopening of borders and the Albanese government ramping up the permanent non-humanitarian migrant intake to its highest level on record, the nation’s rental market faces an additional source of demand for accommodation.

The return of temporary visa holders

Since the start of 2022 through to the end of August, the number of temporary visa holders (excluding visitors and those classified under other) in the country has risen by 220,000. With the Albanese government seeking to clear a remaining backlog of 872,000 visa applications and a further 2.22 million visa applications made since June 1, the pressure on the rental market appears set to continue to build.

In the words of the ABC’s Alan Kohler, in a recent column: “If the Labor government doesn’t start co-ordinating immigration and housing, the mixture will be explosive, because Australia’s housing crisis is going to be horrific next year.”

Looking at the temporary visa holder data from the Department of Home Affairs, it’s clear that Kohler and others raising the issue are right to be concerned.

If the number of students, working holiday visa holders and skilled employment visa holders were to return to their pre-Covid peaks, that would add another 343,000 people to Australia, a sizeable proportion of whom would require some form of housing.

The return of temporary visa holders is likely to increase demand on the few rental properties available.

Balancing it all out

Despite the sizeable surge in arrivals of temporary visa holders, we may be starting to see some hopeful signs of the nation’s rental market beginning to stabilise somewhat. According to data from SQM research, the national rental vacancy rate ticked up slightly in September.

But as with so many things since the pandemic began, it’s a real ‘your mileage may vary’ depending on the area set of circumstances. For example, in Sydney the rental vacancy rate continues to trend down, arguably partially as a result of the harbourside city’s popularity with temporary visa holders.

Meanwhile, in Brisbane, the number of vacant rental properties recently hit its highest level since April. This divergence can be seen in cities and regions across the nation, where some are in significantly greater demand than others.

Predicting how all these various factors end up coming together to reveal the results of the nation’s rental market in 2023 is challenging to say the least.

On one hand, pandemic-driven factors and rising levels of new arrivals could drive a further surge in demand for rental accommodation.

On the other, the rising cost of living and skyrocketing cost of rent is forcing many households to reconsider their living arrangements.

How these factors and others end up balancing supply and demand within the rental market going forward is anyone’s guess, but it will be key to the fortunes of millions of Australian renters and temporary visa holders in need of rental accommodation.

Tarric Brooker is a freelance journalist and social commentator | @AvidCommentator