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Vacancy rates rise: Where investors can still find opportunities
Despite a marginal increase, national vacancy rates have remained tight, prompting strong rental growth and higher yields, with the biggest opportunities being in the smaller capitals.
New data has shown that national vacancy rates loosened slightly last month, but still remained far from a balanced market, following a rise in investor activity and first home buyers.
According to REA’s latest Market Insight report, national vacancy rates grew 0.2 ppt over the month of July to 1.5 per cent, the highest level since February 2022.
Across the capitals, vacancy rates were also up 0.2 ppt in July, to sit at 1.5 per cent, although they are still 1.1 percentage points lower than July five years ago (2.4 per cent).
REA senior economist, Anne Flaherty, said there had been a rise in new investors before the federal budget reforms, increasing the rental pool.
“In the 12 months to June, the number of new loans to investors was at the highest level since the Australian Bureau of Statistics (ABS) began tracking that in 2019,” she told REB.
“So I think that some of that rise in investor activity has contributed to new rental supply.”
Additionally, following the expansion of the 5 per cent deposit scheme last year, there had been a surge in first home buyers entering the market who would have previously been renters.
For investors, Flaherty said the market was two-fold, with strong rental growth in the first half of the year, at the same time property prices had fallen relatively strongly.
“So basically the yields have been increasing because of those two factors – however, property yields are still relatively low, especially in a lot of capital cities,” she said.
Tightest vacancies across smaller capitals
Darwin (0.9 per cent) and Hobart (0.9 per cent) recorded the two tightest capital city markets over the month, with Perth slightly behind (1.1 per cent).
“What we’re seeing is that the capital cities that have had the lowest vacancy rates tend to be places where the housing shortfall is more severe,” Flaherty said.
Flaherty said Perth’s population growth exceeding new housing supply in recent years had particularly caused rental demand to surge.
“Even though Perth has been an investor hotspot during that period, it hasn’t really been able to keep up with the overall population growth.”
“And Darwin can be a transient city as well, which means that a lot of people who live in Darwin may prefer renting rather than owning because they may not necessarily be looking to settle there.”
Housing supply drives vacancy rates up
Meanwhile, Canberra had the highest vacancy rate at 1.67 per cent, recording the biggest growth over July, of 0.3 percentage points.
Melbourne (+0.2 ppt) and Sydney (+0.3 ppt) followed, with vacancy rates at 1.8 per cent and 1.7 per cent, respectively.
Flaherty said in Canberra and Melbourne, housing supply had kept up with population growth, with Melbourne’s high-rise apartments particularly delivering rental supply.
“Melbourne has seen strong population growth, but because there was a period of strong building, that’s helped to prevent the vacancy rates from falling to the levels seen in other states.
“Canberra is a similar story. If we look at population growth relative to housing supply, Canberra has been building enough homes as well … It’s much closer to being a balanced market.”
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