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The outlook for rental vacancies in Australia remains grim, with no realistic prospect of significant improvement anytime soon. Vacancy rates continue to hover near historic lows, a trend that has persisted over the past few years. The current political responses to this rental shortage, including recent changes to NSW rental laws, have so far failed to address the issue effectively and, in some cases, have worsened it.

Recent data from SQM Research shows that the national vacancy rate was 1.3% in June, unchanged from the previous year. Several capital cities, such as Adelaide, Perth, and Darwin, are reporting vacancy rates well below 1%.

While the June rate was slightly higher than in May, this increase is attributed to seasonal factors. Louis Christopher, managing director of SQM Research, one of Australia’s leading analysts, notes that we have likely hit the peak for winter vacancy rates. He expects rates to tighten further until November and predicts that the national rental market will remain in severe shortage for several years.

What does this mean for residential rents? It doesn’t necessarily indicate that rents will continue to rise at the current pace of 10% or more annually. Although vacancies will remain very low for the foreseeable future, there is a limit to how much rents can increase due to tenants’ ability to pay.

According to Christopher, “Much of the structural rental shortage has now been priced into the rental market, so I believe the days of 10-20% annual rent increases are over.”

I agree with this view. Tenants, who often have lower incomes, have faced years of rising rents, and their ability to pay more is limited, especially as other living costs rise. However, due to persistently low vacancy rates, rents are unlikely to decrease and will likely remain high for the foreseeable future.

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