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Australia’s Fierce Rental Market Puts Tenants in a Bind, Forcing Difficult Decisions

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“Australia’s cutthroat rental market leaves tenants grappling with difficult decisions, as skyrocketing prices and limited options force them to compromise on location, size, or even basic necessities.”

Australia’s Rental Housing Market Reaches Breaking Point for Affordability

Australia’s rental housing market, fueled by high migration rates and a shortage of supply, is becoming increasingly unaffordable for tenants. With vacancies at all-time lows and prices rising by 30% over the past three years, renters like Lara Weeks from Sydney are feeling the pinch.

Weeks, unable to afford the skyrocketing prices in the inner city, had to downsize from a two-bedroom to a more distant one-bedroom apartment that costs 22% more. She expresses her disappointment, stating, “I find it sad that I can’t stay in the area for similar money.”

Rental costs have become one of the driving forces behind inflation in the country. In the September quarter, inflation reached an annual rate of 5.4%, surpassing the central bank’s target range of 2% to 3%. This could potentially lead to interest rate hikes as early as next week, further increasing the burden on tenants.

The majority of Australian landlords are private investors with a small number of properties, rather than large corporations. These landlords are likely to be affected by the potential interest rate hikes, compelling them to raise rents and putting more pressure on tenants.

As a result, many tenants are being priced out of houses, particularly in expensive cities like Sydney. While house rents remained unchanged at A$550 per week, or about A$2,380 per month, in the September quarter, apartment rents jumped 4%, reaching an average of A$520 per week.

The rental market across Australia has seen a 7.6% increase in prices compared to the same period last year, the largest increase since 2009. This trend is similar to the surge in rental costs witnessed in the United States.

Reserve Bank of Australia Governor Michele Bullock predicts that rent inflation will peak at an annual rate of 10% in the next few quarters before subsiding. However, some real estate agents are already observing signs of cooling in certain areas.

The rise in rents has more than compensated for the decline experienced at the beginning of the COVID-19 pandemic when Australia closed its borders, resulting in a net outflow of people. Net migration has since rebounded to a record 500,000 people by June.

Unfortunately, the housing supply is not keeping up with this demand. The home building industry is facing challenges such as high borrowing costs, a shortage of labor, and elevated raw material prices. Estimates suggest that up to 70,000 new rentals are needed to balance the market, according to property website Domain.

The affordability of rentals has reached a critical point, with the portion of income required to service new rentals reaching a record 31.4% in the June quarter, according to an ANZ CoreLogic Housing Affordability Report. For low-income households, this figure rises to 52%.

Tim Beattie, a former soldier, was priced out of the rental market in Western Australia and had to leave his job in community services. He now resides with his daughter in Adelaide and is searching for a room in a shared house that costs no more than A$200 a week. Beattie laments the disappearance of the middle class, stating, “There used to be such a thing as a middle class, but now that’s gone.”

The current state of Australia’s rental housing market highlights the urgent need for increased housing supply and measures to address affordability issues.

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