So, you think you know why rents climbed.

You probably think was skyrocketing interest rates and a tsunami of migration.

It’s true that interest rates have jumped more over the past year than at any time on record, and it’s true that migration has roared back—in the six months to September 2022 (the latest month for which we’ve official figures) arrivals exceeded departures by 170,000.

But here’s the thing. Advertised rents began climbing sharply in late 2021—six months before the Reserve Bank began pushing up interest rates, and at a time when it was forecast not to.

And “net migration” was negative back when rents were taking off – meaning the number of arrivals didn’t even match the number of departures.

It's supply and demand

Something else made rents move.

As it happens, there’s no particular reason to think interest rates would have quickly affected rents even if they had been climbing.

If higher rates force some landlords to sell, and they sell to other landlords, the number of properties for rent won’t change.

If those landlords sell to owner occupiers who would otherwise rent, they cut both the number of rental properties and the number of renters.

What matters for rents, as for any price, is the demand for and the supply of the product being priced. More demand (more renters wanting properties) and the price climbs.

More supply (more properties available for rent) and the price falls.

On the face of it, neither demand nor supply was changing much during COVID as rents started climbing. Australia’s population was growing more slowly than at any time in modern history. And, as best as we can tell, the number of properties available for rent was climbing, albeit weakly.

What did change during Covid, according to the research department of the Reserve Bank, was the average number of people per household.

The change doesn’t sound big—the average fell from a bit above 2.6 residents per household to a bit below 2.55—but applied to millions of households it meant about 140,000 more houses and apartments were needed than would have been.

Credits to:

The Urban Developer

Peter Martin (Author)
Visiting Fellow, Crawford School of Public Policy, Australian National University