Residential rents to rise further, with markets remaining in undersupply

Residential rents are forecast to rise further in 2024 as vacancy remains at record or near record lows. Pricing indicators however may be in for a year of mixed outcomes.

Price resilience continued in the September quarter, although the November rate rise may have taken some of the wind out of performance, particularly in Sydney and Melbourne.

CBRE’s Residential Figures Q4 report shows the national median house price rose by 1.1% quarter on quarter in September to $990,800 while the national median unit price rose by 1.5% to $657,400 (REIA data).

Craig Godber, CBRE’s Head of Residential and BTR Research, believes the interest rate cycle is at its peak, with signs of an easing in the inflation rate starting to come through and a sluggish Q3 GDP result.

“The 13 rate increases since May 2022 have pushed mortgage rates to their highest levels since 2011. This is expected to bite more in 2024 as household budgets are stretched.”

“Prices are expected to stagnate or pull back modestly in Sydney and Melbourne, although modest gains may still be achieved in the smaller markets, supported by population growth.”

Substantial rental growth has continued across most markets, approaching 30% year-on-year in some cases. The report estimates the 1.135 million net overseas migration target over the three years to 2025 will translate into demand for around 450,000 new dwellings. This increases to over 600,000 when natural population increase is factored in.

Mr Godber added, “With supply pipelines remaining constrained, there is unlikely to be any significant correction in the supply/demand imbalance for some years.”

“Rent increases above CPI are likely to continue in most markets, although gradually slowing as affordability pressures grow and supply eventually creeps higher.”