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The Impact Of Low Vacancy Rates On Tenants And Landlords
We hear this term all over real estate headlines - Low vacancy rates. What are they? How do they impact tenants and landlords?
Did you know that a vacancy rate of 3% is considered healthy? Why? Because it represents a rental market balanced between tenants and landlords. Areas with vacancy rates of less than 2% mean high rental demand, while rates above 4% mean that there is more housing supply than demand.
Where do vacancy rates currently stand?
PropTrack's Rental Vacancy Rates for September noted the national vacancy rate was at a record low and predicted it will likely decrease further. The combined capital city vacancy rate has been trending down since the start of the pandemic and is now 57% lower than it was in March 2020 and down 21% from last year.
Meanwhile, in August, the national vacancy rate fell 0.1% to sit at 1.2%, according to figures from SQM Research. There were only 35,425 available rental properties Australia-wide over the month. Every capital city recorded a dip in vacancy rates, except Melbourne (held steady at 1.3%) and Darwin (held steady at 1.0%). Domain notes Australia needs 40,000 to 70,000 additional rentals to shift to a balanced market.
What does this mean for tenants?
The ever-increasing demand for rental properties means prospective tenants are struggling to secure a lease. PropTrack notes demand for rentals in the capital cities has grown strongly over the past two years, with the number of potential renters per listing increasing by 40% since May 2021.
And for landlords?
One of the biggest advantages for landlords is the possibility of higher rents. The simple economic principle of supply and demand means that higher asking rents may be possible. However, it is important for landlords to be across applicable laws that dictate when, and how much, rents can be increased.
With this all being said, it is no surprise that low vacancy rates are leading to intense competition between prospective tenants. As a result, renters are offering to pay landlords a premium above the advertised price.
Top tip: Landlords should be careful about engaging in rent bidding (where tenants offer more than the advertised rent to have an advantage over other applicants). The practice of soliciting rent bids has been outlawed in QLD. In most jurisdictions, it is not illegal for tenants to offer above the asking price, but it is against the law for agent or landlord to suggest that they do.
Disclaimer: This blog post is not to be considered legal advice. If you are seeking specific legal advice we suggest that you consult a legal professional before making any significant decisions in this regard.
Source: Rentcover.com.au