Australia’s renters, brace yourselves for some optimistic news. According to a recent study by CoreLogic, the long upward climb of rent values may finally hit a pause button in 2024. While rents have been surging upwards for 35 consecutive months, CoreLogic’s Head of Research Eliza Owen says next year might just see that trend slowing down. This could be the silver lining that Australia’s beleaguered renters have been waiting for.
What’s driving this expected slowdown? For starters, let’s talk about the closely intertwined relationship between rent values and the RBA cash rate. When interest rates are down, typically rents don’t rise as quickly. Owen’s study shows that major banks are forecasting a decline in the cash rate for 2024. So, for renters, a decline in interest rates could very well mean a respite in escalating rents. Investors, lured by these rates, might just start pouring more into housing, thereby increasing the rental supply and ultimately helping to stabilize or even lower rent growth. It’s interesting to note that the mere expectation that RBA may halt rate hikes soon might already be spurring investment activity. New investment loans have been picking up pace, potentially adding more supply to the rental market.
Next in line is household income. You’d think the pandemic would dent our pockets, but ironically, incomes surged. Fuelled by the most significant peacetime fiscal stimulus package ever, household income growth doubled to an average of 1.4% per quarter since the pandemic’s start. But, as they say, what goes up must come down. With monetary policy slowing down the economy, the income growth rate is expected to slide next year. This could mean renters re-evaluating their housing choices. We might see a return to the days of shared housing as people look to cut costs, especially in regional Australia where household sizes are already nudging back to pre-pandemic norms.
Last but not least, let’s talk about the elephant in the room—affordability, or the lack thereof. According to CoreLogic, rent values have jumped a whopping 29.3% since August 2020, and people are now spending nearly 31% of their income on rent as of March 2023. That’s the highest level since June 2014! But here’s the kicker: renters generally have lower incomes, and there’s only so much they can shell out for a roof over their heads. There’s evidence of people migrating to more affordable rental markets, potentially alleviating pressure on the pricier regions.
Despite this optimistic forecast, let’s not lose sight of the bigger picture—housing reform. The cyclical factors affecting the rental market don’t negate the need for more strategic, long-term changes. Owen applauds the recent national cabinet proposals that aim to add 1.2 million well-located homes in the next five years, a move that could significantly dampen rent values. Moves to standardize the quality of rentals and add more social and affordable housing options are also on the table.
So, will 2024 be the year of the renter? While it may not be a full U-turn, the indicators are suggesting a potential gear shift in the ferociously competitive rental landscape. And for those who’ve been battling rent hikes, that’s something worth celebrating.
For comments or feedback, reach out to office@indiansun.com.au.
Disclaimer: The information in this article is based on the CoreLogic report and should not be considered financial advice. Consult with a qualified professional for personalised financial guidance.
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