ACT vacancy rate highest in the country but suburban rental houses set to dry up

Canberra’s apartment boom elevated the Territory’s rental vacancy rate in July to the highest in the country, but the property industry is warning that the market is tightening for freestanding homes as investors sell off properties that are costing them too much.

According to SQM Research, Canberra’s vacancy rate hit 2.2 per cent in July with 1312 properties available. At the same time last year, the vacancy rate was 2.1 per cent, with 1250 properties available. The average weekly rent is $660.

While Canberra’s market has been easing, the other capitals have been squeezed, with rents steepling as a result. But in July, the capital city asking rents recorded the largest monthly rental falls since the outbreak of COVID, with a combined dwelling rent decline of 0.5 per cent over the past 30 days to 12 August.

Rents remain very high, though, and vacancy rates are low.

Sydney, with a vacancy rate of 1.7 per cent, is the closest to Canberra, followed by Melbourne and Hobart at 1.5 per cent and Brisbane at 1.1 per cent. Adelaide has the tightest market at 0.7 per cent.

Rents in Canberra show a two-speed market, with rises relegated mainly to suburban houses.

For the month to 12 August, average unit asking rent was flat at $560 a week while houses jumped 2 per cent to about $780. Over the year, unit rents edged up 0.8 per cent but houses rose 1.4 per cent.

Real Estate Institute ACT CEO Maria Edwards said the large number of apartments coming onto the rental market, like significant developments such as WOVA in Woden, contributed to the vacancy rate.

Ms Edwards said there were hundreds of units in the WOVA development and agents were struggling to fill them.

However, they were not suitable for young families, and the current unbalanced mix of properties skewed the figures.

Ms Edwards said that a mix of rental caps, increases in land tax, rates and mortgage payments and upgrade requirements in the current inflationary environment was forcing many house-owning landlords to rethink their investment.

She said that the market was set to tighten further with a lot of homes going on the market in September, and rents would continue to rise as a result.

The homes that could disappear from the rental market were the ones most needed, she said.

“It’s the medium mum and dad houses in the suburbs; they’re the ones having trouble,” Ms Edwards said.

She said the government rent cap meant landlords could only lift rents by 0.99 per cent at present, or $5 a week, for a property let at $550 a week.

“For landlords to hang on in the current cost of living crisis, it’s a bit hard if you can’t put rent up more than $5 a week,” Ms Edwards said.

“People are realising they can put their money elsewhere.”

Ms Edwards said some were also becoming the bank of mum and dad for their children so they could get into their own homes.

It was even 50:50 whether apartment owners would hold their investments in the current climate.

Ms Edwards said the investor profile was probably changing to those with deeper pockets or institutional players who could take a long-term view.

She welcomed government encouragement for build-to-rent projects, but those developers would need to do their sums in Canberra with its current tax and regulatory settings.

“It’s a bit more risky in the ACT than in other jurisdictions and the vacancy rate is high,” Ms Edwards said.

“They’ve got to do their numbers to see if it’s worth it.”

SQM figures show the ACT’s cheapest apartments to rent are in Woden ($530), Gungahlin ($533) and Belconnen ($550).

Unsurprisingly, Woden has the highest vacancy rate at 3.4 per cent, followed by Gungahlin at 2.8 per cent.

For renting a house, Belconnen offers the best value, with an average rent of $667 a week.

The inner south is the most expensive area at $758 a week.