“So that's probably put investors off and slowed the supply of new rentals coming to market.”
Social housing stock has also declined with the portion of public dwelling approvals falling from nine per cent in the 1980s to an average of under two per cent for the past five years.
“That means you've got less of a safety net and more people on low incomes in particular competing for private rentals,” Ms Owen said.
The demand side was also having a significant impact with both stronger domestic demand for homes as the number of people per household fell, as well as the return of overseas migration. ABS data shows around 85% of new arrivals rent.
The report also underscores how rental affordability has deteriorated more rapidly across the regional market. The portion of median income required to service rent in the regions was 33.1 per cent at the end of March, up from a low of 28.5 per cent in mid-2020.
Ms Owen said there were some signs of easing in this market.
“Regional rent values have gone up about six per cent since this time last year, but that’s a marked slowdown compared to the gains of around 12% in 2021.”
“In some regional markets like the Southern Highlands, unit rents have fallen 10 per cent from their recent peak, including a five per cent drop in the three months to April.”
“Most of the markets where rents are falling right now are regional Australia and I think they reflect people essentially moving away from markets that have just become too unaffordable for them.”
Rents across the Gold Coast are still 40 per cent higher than they were pre-pandemic, but growth has slowed as underlying migration trends show it is no longer the top spot for internal migration.
With the return of overseas migration, rents are growing rapidly in some inner-city areas as people return.
“The three months to April this year showed a pretty rapid increase in rent values across Sydney's eastern suburbs. Houses and units were up over 7 per cent. Rents on houses in inner-Melbourne surged around 6 per cent in the past quarter.”
The report showed rent for some Australians on the lowest incomes can make up more than half of their income. This was felt most strongly in Hobart where it was about 60 per cent of income.
In many of these households, more people were trying to live together to alleviate the rental pressures, Ms Owen said.
“Or they may be in a really vulnerable housing situation. They may be leaning on homelessness services.”
Owen believes the solution lies in greater supply as additional private sector rental accommodation would help to ease the housing pressures.
“In the short-term, I think you're more likely to see tenants trying to stay put for longer and negotiate with their landlords rather than battle it out for a new lease in the private rental market.”
Felicity Emmett is Senior Economist at ANZ.