Australia’s national rental vacancy rate has fallen again – down from 1.3% in February to just 1.1% in March.
While this may sound like a small drop, it’s significant in the world of real estate. It means we’re diving even deeper into one of the tightest rental markets in recent memory.
When the vacancy rate is this low, the balance of power shifts decisively in favour of landlords.
Why? Because demand for rental properties is exceeding supply and when demand outstrips supply, rents increase.
A vacancy rate is more than just a number. It’s the clearest, real-time indicator of the pressure cooker that is Australia’s housing crisis. Right now, that pressure is building fast.
A healthy, balanced market typically sits between 2.5 per cent and 3 per cent vacancy, one where ensuring renters have choices and landlords enjoy consistent occupancy.
The next question is why 2.5 to 3 per cent?
There are two reasons for this:
1. Population growth
Our population is growing by 450,000 people per annum, which is the equivalent of about 40,000 per month.
To house these numbers, we need around 20,000 new homes per month (assuming there’s an average of two people per home). While the average household size is 2.5, most of our population growth is driven by migration – predominantly singles and couples – placing even more strain on housing demand Down Under.
With approximately three million rental properties in Australia, accommodating just the incoming population necessitates a minimum vacancy rate of 0.7%.
2. Housing mobility
Even without population growth, people move and they move often. In fact, the average tenant relocates every 1.8 years and nearly 30% of private renters have lived in their current dwelling for less than a year, and over half of them for less than five years.
This natural movement requires a buffer of around 2% vacancy just to allow the market to function – people moving in and out, properties transitioning between tenants, etc.
Add those two together – 0.7% for population growth and 2% for mobility and we arrive at a minimum required vacancy rate of 2.7% to sustain a stable rental market.
Right now, we’re at 1.1%.
OK, so let that sink in for a moment. We’re not just below the threshold – we’re well below it. This means we’re not even covering the basic housing mobility needs, let alone population growth. The result? Fierce competition for rentals, rising rents and increased stress for tenants.
Where is the pressure strongest?
Here’s a summary of vacancy rates by city:
On paper, Sydney and Melbourne may appear less pressured, but it’s worth remembering that they also have the highest population growth rates. So, their “moderate” vacancy rates are somewhat misleading; they need to be even higher to keep pace with local demand.
Bear in mind that every suburb tells a different story and local data on vacancy and mobility is essential for making informed property decisions.
Australia is currently building 70,000 fewer homes per year than we need, which is a massive and growing shortfall. And with construction lagging demand, there’s little sign the pressure on the rental market will ease anytime soon.
What does it all mean?
• If you’re a tenant: The road ahead may be tough. Expect continued competition for properties and rising rents unless we see a significant shift in housing supply.
• If you’re a landlord: The outlook is strong. With such low vacancy and high demand, consistent rental income and potential rent increases look almost inevitable. It’s arguably one of the most landlord-favourable environments in decades.
Post-script: Interestingly enough, the national vacancy rate sat at 2 per cent prior to the pandemic. It then dropped to 1 per cent when social distancing and working from home became essential.
In the past 18 months, we saw the vacancy rate bump back up to 1.5 per cent, despite not building anywhere near enough houses, presumably because people reverted to shared living. Unfortunately, it seems that the moment of reprieve has now passed, with the vacancy rate nearly back down to the pandemic low of 1 per cent.
