Renters are facing fewer options when it comes to choosing their next home, with vacancies at their lowest level in years and expected to drop further as international borders reopen.

Competition for rentals – which held the national vacancy rate at a multi-year low of 1.5 per cent in November – is expected to increase, along with prices, as international students and migrants return to Australia, experts say.

Australia’s rental vacancy rate is at a multi-year low of 1.5 per cent.Credit:Peter Rae

It is already a landlord’s market in most cities, said Nicola Powell, chief of research and economics at Domain, with vacancy rates in Perth (0.5 per cent), Hobart (0.3 per cent), Adelaide (0.4 per cent) and Brisbane (1.2 per cent) at multi-year lows – the rates holding steady or falling marginally in each location last month.

The vacancy rate also fell slightly in Melbourne for the third month in a row, from 3.1 per cent in October to 3 per cent in November, and is now at its lowest level since June 2020 – although it was still the highest of the capital cities and the only one above pre-pandemic levels.

Vacancies increased marginally in Sydney, from a rate of 2.2 per cent to 2.3, but this was still the city’s second lowest rate, after October, in more than three years. They also rose in Canberra and Darwin to 0.9 per cent.

Tenants were operating in very tight markets, except for Sydney and Melbourne, Dr Powell said, which had been the hardest hit by the pullback in demand from international students, migrants and visitors during the pandemic and would likely see the most significant change as borders reopened.

“It will probably have a pretty dramatic impact on the vacancy rate … once we start to see a flow of international arrivals,” she said.

As state and international borders reopen and economic conditions improve, rental demand will likely climb, reducing the already limited proportion of vacant homes in many cities and pushing prices beyond already record highs, Dr Powell said. This could make it harder for lower income earners to be considered for properties.

“In that kind of market, a landlord will want to pick the crème de la crème of tenants … a landlord can be choosy, more particular of whom they’re letting in, and that makes it really tough, particularly for somebody on a lower income, or perhaps in a less stable job,” Dr Powell said.

While increased investor activity – with the value of investor loans recently reaching its highest level in more than six years – would help boost the supply of rentals, it would also leave more aspiring first-home buyers renting for longer, she said.

Melbourne’s rental vacancy rate has fallen to 3 per cent, its lowest level since June 2020.Credit:Eddie Jim

The majority of experts expect rental prices to increase significantly as international borders open, the latest monthly Finder RBA Cash Rate Survey found, with 22 of 30 experts backing significant rental hikes.

Among them was Mathew Tiller, LJ Hooker Group’s head of research, who thought the return of international students and new arrivals would put downwards pressure on vacancy rates and upwards pressure on prices – particularly in inner-city apartment markets.

Demand from local tenants was also expected to lift, Mr Tiller said, as those renters who went back to the family home during the pandemic moved out again, workers returned to the office and students returned to face-to-face learning. Other tenants, after months of living with housemates in lockdown, were deciding to leave sharehouse living and move into smaller apartments to make the most of lower prices.

“Now that some of the smaller investment stock has seen affordability [improve] … they’re deciding I can actually afford that on my own,” Mr Tiller said.

Of the capital city regions that recorded the largest declines in vacancy rates last month, half were in Melbourne, with the CBD topping the list with a fall from 5.8 per cent in October to 5.1 in November.

However, the CBD vacancy rate remains one of the highest in Melbourne, with renters still finding more choice and less competition than in other parts of the city.

Leasing agent Daniel Freeman, of Hodges South Melbourne, said the inner-city apartment market was still proving quite tricky for landlords, with properties taking about six weeks to rent, and landlords still slashing prices – some by as much as $100 a week – to get tenants through the door.

The closure of international borders, an increase in first-home buyer activity and renters returning home to live with family had all reduced demand for properties, he said. Meanwhile, the surge in short-term holiday rentals converting to longer-term rentals had increased supply.

“Unless the prices are attractive, [tenants] aren’t wanting to jump on because they know there is not going to be a lot of competition out there,” Mr Freeman said.

While demand was expected to increase in the months to come, he expected to see a gradual shift, noting people were still cautious of the potential for future border closures and lockdowns.

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