If you’ve stood in a queue of dozens of people to inspect a rental, you’ve felt a low vacancy rate. Here’s what the number measures, and why it has such a big effect on rents.
The rental vacancy rate measures how many rental properties are empty and available for new tenants, as a share of all rental homes in an area.
If a suburb has 1,000 rental homes and 15 are available to rent, its vacancy rate is 1.5%.
It’s one of the best indicators of how tight the rental market is. Data firms such as SQM Research, Domain and Cotality publish vacancy rates regularly, and real estate institutes in each state track them too.
What the numbers mean
A vacancy rate of around 3% is generally considered a balanced market, where renters have reasonable choice and landlords can still find tenants without long delays.
When vacancies fall below about 2%, the market is tight. Renters compete for fewer homes, properties are snapped up quickly, and landlords can raise rents with little risk of their property sitting empty. Rates below 1%, seen in many parts of Australia in recent years, are often described as a rental crisis.
When vacancy rates are high, the balance shifts the other way. Landlords may cut rents or offer incentives to attract tenants.
Why vacancies have been so low
The main reason is that demand for rental homes has grown faster than supply.
Australia’s population grew strongly after borders reopened following the COVID-19 pandemic, driven by the return of international students, skilled migrants and working holiday makers, most of whom rent.
At the same time, building approvals and completions fell, as higher interest rates and construction costs made new projects harder to fund. Some investors also sold properties as higher rates pushed up mortgage costs.
Household sizes also changed. During the pandemic, many people chose to live with fewer housemates, which meant more homes were needed for the same number of people.
What it means for renters
Low vacancy rates usually lead to faster rent rises, often well above inflation and wages growth. That has put pressure on household budgets and contributed to higher measured inflation, because rents are a significant part of the consumer price index.
Governments have responded with measures including limits on how often rent can be increased, bans on rent bidding in some states, more funding for social and affordable housing, and incentives for build-to-rent developments.
In the longer term, most economists agree the only lasting fix is building more homes in the areas where people want to live.
