Is the regional rental boom winding down?

Asking rents are down and vacancies are on the rise in the regions – even as rents continue to soar in the capital cities

Is the regional rental boom winding down?

Asking rents have seen a sharp decline in some of Australia’s most popular hot spots of the pandemic, indicating that the regional rental boom could be winding down, according to SQM Research.

Along with falling rents, an increasing number of townships and regions are posting a spike in vacancies after their pandemic lows, SQM Research managing director Louis Christopher told The Australian Financial Review.

In the capital cities, however, asking rents continued to spike as vacancies tumbled to multi-year lows.

House rents on the Gold Coast fell by 7.1% to $972 in the month ended Nov. 12, and have dropped by $23 in the past week alone, AFR reported. In Noosaville on the Sunshine Coast, rents tumbled by 11.2% to $865.30 in the same period. In the past week, rents in the area fell by $17.

In Ballina on the NSW North Coast, asking rents have fallen by 4.8%. Asking rents for an average three-bedroom house in Bowral in the NSW Southern Highlands fell by 5.2% over the month and by 20.4% over the year.

The slump in asking rents could indicate a reversal of the great exodus from the capitals seen during the COVID-19 pandemic.

“More regions are now recording a rise in vacancies because we think people are returning back to the capital cities,” Christopher told AFR. “Some of the regions that have recorded significant falls in rental vacancies during the COVID lockdown period are now starting to see a rise in vacancies, albeit at a low level. I don’t think it’s a result of building completion or development activity, but because there appears to be fewer people seeming to live in these areas.”

Noosaville’s vacancy rate rose to 2.2% in October, up from just 0.1% in November 2020. In NSW’s South Coast, vacancies rose to 1.9% from an all-time low of 0.1% in October last year.

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However, vacancy rates in the capital cities continued to fall. Sydney vacancies dropped to 1.3%, their lowest level in more than 11 years, AFR reported. Melbourne’s vacancy rate dropped to 1.5%, its lowest level since March 2018, and Canberra fell to 1.1%. All other capitals had vacancy rates below 1%.

Nationally, the vacancy rate is at a 16-year low of 1%.

“This shows that rental vacancy rates are not improving in the capital cities and that the situation continues to deteriorate for tenants,” Christopher said. “I think rental increases will continue for at least until the June quarter next year across the capital cities. We might see a peak then, but there’s a lot of uncertainty at this point.”

As vacancies in capital cities fall, rents continue to climb. The average asking rent for Sydney homes has spiked 28.4% in the past 12 months, the largest increase among the capital cities. Melbourne rents have risen 22.8% over the year, while Brisbane rose 24.5%, Perth rose 18.3%, and Adelaide rose 20.6%. All other capitals posted rental increases below 10%, AFR reported.

“I think we’re going to see ongoing pressure for capital city rental properties through next year, as we’re expecting a significant surge in overseas migration and more people coming back into the cities from the regions, but there’ll be offsets,” Christopher told AFR.

Christopher said that about 240,0000 new dwellings would be completed next year, up from 170,000 this year. He also predicted that housing formation would slow.

“I also believe that if we were to see an economic slowdown, we could see a return of these Airbnb properties back into the long-term tenancy market, and we may see additional government regulation to try and soften the rental crisis,” he said.