Latest NewsHouse Rental Prices Set to RiseMonday, 10 April 2017

Renting is expected to become even more expensive, due to a boost in population and a shortfall of new homes being built.

For people caught up in the rental cycle, the process of securing a property at a reasonable price is likely to become trickier over the next year, a series of recent rental surveys shows.

Minutes of the latest Reserve Bank of Australia (RBA) October monetary policy board meeting say there are signs the rental market is "tightening again", with vacancy rates falling from levels that were "already quite low".

"Tightness in the rental market (is) likely to persist given the ongoing strong population growth and the decline in housing approvals this year, and could be expected to feed into increases in rents," the minutes released this week show.

"Approvals for construction of apartments remained at low levels in most states, with Victoria a clear exception."

The grim predictions come as strong house price growth over the past 18 months begins to taper off.

The minutes also said that a slowdown in the pace of household borrowing had been accompanied by cooling in the established housing market, with house prices falling slightly in recent months.

Commonwealth Bank economist Michael Blythe said the immediate outlook for housing supply was improving, but it would "turn negative" as high interest rates began to bite over the next year.

"We've still got relatively strong population growth so the demand is still fairly tight," Mr Blythe said.

Additional costs to investors, such as utilities and government charges, would be passed on to renters, he said.

"On the demand side, you've got the population story and you should have relatively strong income growth," Mr Blythe said.

"Not only are there increased costs coming through for investors, but the amount of money that rental households could potentially have to pay for rents signals that there should be some (rental) increases coming through there."

Meanwhile, the latest BIS Shrapnel residential property prospects survey shows the rental market is likely to remain tight, with rental growth for investors still strong in Sydney and Melbourne, but slowing in the other capitals.

"With vacancy rates in most cities expected to stay tight...rental growth in the five to seven per range is likely in the short term," the report said.

"Rising prices and high interest rates over the past year may also keep tenants in rental longer while they accumulate savings to purchase a home."

In June 2010 the vacancy rate in Sydney was 1.3 per cent and rental growth was almost 10 per cent, while Melbourne's vacancy rate was 1.5 per cent and growth was 8.2 per cent.

The most difficult city to find a rental is Adelaide, which has a vacancy rate of 1.1 per cent.

But while mid-term economic forecasts point to further population growth over the next few years, a recent Australian Property Monitors survey found rental growth remained flat in the September quarter. Tightening is expected to occur.

Nationally, rents declined slightly by 0.3 per cent for houses and 0.5 per cent for units, bringing the annual level of growth for houses to 2.8 per cent, below the long-term average growth rate of 6.8 per cent, the rental price series quarterly report said.

However, Sydney remains the most expensive place to rent a unit at $440, and the second most expensive place for houses after Canberra.

The report said the outlook for rents was still "one of growth".

"Demand and supply pressures remain as population growth continues," the report said.

"Tight vacancy rates, together with a strong economic outlook, will lead more of the population into the rental market and inevitably into higher rents."