Sydney’s home rental pressures “unlikely to abate”: JLL

Blame it on the insufficient new supply.

According to a JLL report, underlying demand for apartments should continue to be boosted by high levels of migration in Sydney. The lower price point of apartments is also likely to support demand in the city where detached house affordability is particularly stretched. 

With little new supply to alleviate the situation, the supply shortfall in Sydney is expected to grow over the next few years.

Here’s more from JLL:

Rental pressures are unlikely to abate with little new supply, although affordability of rents might start to be more of a constraint on the rate of growth. The rebound in existing dwelling prices may start to slow in the near term as market conditions improve and more vendors are encouraged to list their properties, increasing stock availability in the market.

Apartment pre-sales remain muted

The general Sydney housing market remains robust and a lack of stock for sale in the existing market is keeping auction clearance rates high. Dwelling prices have now grown over the past five months.

Apartment pre-sales across most of Sydney remain slow. However, smaller projects in premium locations, which are still receiving robust owner-occupier demand, especially from downsizers, remain an exception.

Development remains challenging

Few apartment projects, especially those in Western Sydney, and larger ones with long-selling periods that expose developers and financiers to risks of further project cost rises, are progressing towards construction. Although recent tax changes and other incentives have generated interest in Build-to-Rent (BTR) projects, Sydney’s high land costs are still a constraint to BTR activity in the city.

Sydney rental vacancy was a low 1.7% in June 2023 (SQM Research), which has increased slightly from a low of 1.3% in March, but much of the rise is likely to just be normal seasonal variation around student flows. Regardless, it remains a tight rental market where displacement and difficulty securing rentals remain high across much of Sydney.

Rents and apartment prices now growing

Reflecting tight rental conditions, 2-bed apartment asking rents across Sydney have grown by over 25% over the past year. Rental levels have surpassed pre-COVID-19 levels. Although affordability is likely to dramatically slow the pace of growth in asking rents, landlords are expected to continue setting high rents for the near future, while leases expire and are re-let.

Due to the low number of listings in the housing market, Sydney apartment prices have grown for the past five consecutive months. Nevertheless, prices still remain around 3.5% lower over the past year, and well below the recent peak levels.

Note: Sydney Residential refers to Inner Sydney apartments. Price and yield data sourced from CoreLogic. Rental data from JLL Valorem. Vacancy data from the Real Estate Institute of New South Wales.