What’s happening with the rental crisis – and are higher interest rates really the cause?

There are a lot of buzzwords and opinions being flown around in the media right now – rental crisis, housing crisis, high inflation, possible recession, rising interest rates. If you’re like us, your brain may be feeling exhausted from an oversaturation of information and the related worries that a rental crisis brings.

But what exactly does the media mean by the rental crisis? And what’s caused it? Was it triggered by slow construction, supply problems, immigration, high interest rates, the pandemic? Or all the above? And what’s the best way forward now that we’re in it?

Read on for our experts’ answers.

What exactly is Australia’s ‘rental crisis’?

Australia is currently experiencing what is known as a rental crisis. This is when rental vacancy rates are very low, and rental rates start pushing higher. While we often expect to see this in the capital cities, the rental crisis has now become a national issue.

But what does this look like in real terms? Well if you’re a renter you might be seeing some mind-boggling rental rates, some outstripping even comparable mortgage rates on similar properties. The media is also reporting uninhabitable sheds and backyards being advertised for monstrous amounts. And rents are tipped to keep trending upwards into 2024.

Prospective renters are being priced out of the rental market. Or they’re being forced to compete with so many other renters for limited properties that the endless string of rejections leads to homelessness.

It is a significant problem.

So, what's causing the rental crisis?

The cause of the rental crisis doesn’t come down to just one thing. In fact, here are a number of factors at play.

High interest rates

When interest rates go up, the cost of home loans increases too. And in Australia our interest rates have been on the rise for 11 months.

Higher interest rates mean higher prices. And higher prices lead to fewer people buying homes, which puts additional pressure on the rental market. Some investors may also be passing on the costs of higher interest rates to their tenants via higher rents.

Slow construction

As with any products, costs are going to heavily impacted by supply and demand. And in Australia, there are simply not enough dwellings to keep up with growth.

Pandemic housing changes

Reports have also shown that there’s been an increase in the number of single-person dwellings since the pandemic. This has been contributed to the breakdown of relationships within couples and even roommates in share-houses.

Though the decrease isn’t a lot by percentage (an average of 2.59 persons per household in 2016 to 2.54 persons per household in 2021) ‘it represents around 192,000 extra dwellings being occupied… and soaking up around a year’s supply’. And this contributes to increased demand for rentals.

Construction shortages

The construction of new homes is falling. Reports show that in the 2022-23 financial year, 148,500 new dwellings are expected to come on to the market. In 2024-25, this number will fall to 127,500. The delay is due to macroeconomic conditions, stronger demand, tight labour and supplies and bad weather delays in construction.

Borders reopening after Covid

As Australia’s borders have reopened to international students and visitors, the demand for rentals has been increasing. This of course puts further pressure on the rental market.

Record immigration

The migration boom contributes to the dwindling availability of rentals. Immigrants compete with locals to snap up a shrinking number of homes.

A shift to short-term rentals

Short term rentals – such as AirBNB, Stayz and the like, are having a serious impact on rental availability (and prices!). Tenants living in tourism regions are finding that the available supply of rental properties is being affected by investors taking their properties off the long-term rental market to let them out for shorter holiday stays.

For example, in the Brisbane market in February, there was just over 5200 short-term rentals, but only around 2800 rental properties.

The pandemic

We’ve touched on this above, but the pandemic certainly impacted rental supply. The average Australian household rose which reduced the number of households available across the nation by 162,000. Lockdowns and quarantines also contributed to people wanting a place of their own as well, with demand rising in 2022 to 288,000.

What can we do about the rental crisis?

There may not be much we can do about supply and demand in Australian rental properties. But there are some things we can do to ensure we’re in the strongest position possible to both compete for available properties.

Assess your current position

Your first step is to take a close look at your current financial situation and projected earnings. In order to compete in a cut-throat rental market you’ll need to have to be able to show that you’re financially stable, easy to work with and have the required rental bond.

A rental bond is usually one month’s rent. Landlords may require this to be paid as a security deposit in addition to your monthly rent. Finding this extra money can be difficult at times. So ensuring you have this ready to go will put you in a better position.

Get organised

You have to be able to move quickly in the rental market. So it pays to be organised.

Make sure you have compiled all the information you may need for any rental application, and keep it continuously up to date. This includes your personal details (and the details of any other person who will be living with you), your employment information, your income and financial information and references.

A well-organised, complete application shows a prospective landlord that you will be a good tenant. And having the info at your fingertips puts you in a position to submit your applications speedily.

Offer more cash

Sometimes you may need to offer more money than the asking price. This can be a winning strategy, especially when you have good financial backing. While rent bidding is a no go, as a prospective tenant you can ‘proactively offer more than the advertised rental amount’ and the landlord may accept.

Offer a longer lease

Offering a longer lease period may also give you the edge in a tough rental market. It costs the landlord money in advertising, cleaning, background checks and other expenditures every time there’s a turnover in the property. So many will give preference to those tenants willing to offer a longer lease.

Carefully consider your options

Is it time for you to step out of the rental market and into your own home? With the costs of rental skyrocketing, it might be time to consider a mortgage. And it could be easier than you think!

If you’re sick of dealing with the rental crisis and wondering what to do next, your first move should be to talk to an expert. The Lending Loop team can assess your current situation and advise you on the best path moving forward.

Give us a call today at Lending Loop, and let’s see how we can help!