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What rent inflation isn’t telling you about the extent of the rental crunch

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Rising rents are a concern for tenants across the country, but the true extent of the problem facing many is not captured in the official inflation measure of rent costs.

Advertised rents provide a measure of the cost of new rental properties and provide a guide to how the average rent paid may increase in the future.

And that’s much worse than the official data, known as rent inflation, suggests.

What is rent inflation?

Rent inflation, as measured by the Consumer Price Index (CPI), rose 1.3% in the Sept 2022 quarter, the biggest increase since 2009.

This is one component of economy-wide inflation, forcing the Reserve Bank of Australia to raise interest rates at the fastest pace since 1994.

By using data from realestate.com.au, you can find out both the advertised rent price and the estimated price paid for all current rental leases. This is because you can track how newly advertised rentals replace old leases.

Finding rental properties can be tough – especially finding affordable rental housing.Photo: Getty

Of course, if an existing non-advertised tenant’s rent is renewed, the advertised rent data will not reflect the renegotiated lease.

However, CPI rent inflation is not always a useful indicator for renters. It measures the change in average rent paid by a sample of approximately 480,000 rental properties in the capital. CPI does not include regional prices.

Average rent is a combination of:

  1. new rental lease
  2. Existing fixed lease (previously signed, no increase seen)
  3. Renewed leases (renegotiated prices for those outside the fixed lease term).

As explained by the Australian Bureau of Statistics, CPI rents measure the temperature (average price) of the bath (all rentals), while advertised rentals measure the temperature of the water flowing into the bath (which is currently very hot). measure.

Advertised rent is more important to most renters

However, renters looking for new rental properties are most interested only in the cost of new rentals. According to the advertised rent, Rising at a much faster pace than CPI rents.

CPI rents have only increased by 3% since mid-2020. This reflects that advertised rents have fallen in many places during the pandemic, with many landlords offering discounts to existing tenants as demand dwindles.

Advertisement rents, which are used to estimate current average rents, show an increase of just over 5% over that period. In part, the greater strength of this metric is because it doesn’t reflect prices that have been renegotiated throughout Covid.

In contrast, prices for newly advertised rentals have surged by an average of 13% over the past two years. This is a concern for all tenants looking for new rental properties.

This sharp increase in newly advertised rent prices flows into all advertised rents and CPI rents with a lag. But the price difference between new and existing rentals is why CPI rents are now rising at his fastest pace since 2009.

It is normal for newly advertised rentals to be higher than previously advertised prices. Usually this is around $20 a week. But in this one year, that extra cost ballooned to his nearly $60.

This additional cost and very low rental vacancy rates, which means there are very few rental properties available, make it very difficult to find new rental properties.

This forces many tenants to stay in their current rental properties. This is even if it is no longer appropriate for your household in terms of size or location. Of course, a stay can’t protect the renter from higher costs as the lease is renewed.

Where do you rent from here?

The huge price difference between advertised rentals and current leases indicates that costs will continue to increase significantly over the next year.

Even assuming the price of newly advertised rental properties doesn’t rise any further, costs to tenants will rise rapidly once the lease ends.

The average rent paid in the capital (currently around $470 per week) could rise to almost $500 by the end of next year.

This also means that CPI rents, a key input in the Reserve Bank’s assessment of inflationary pressures and interest rate settings, will rise by more than 4% annually over the first half of 2023.

Unfortunately, there is no grace period for renters across Australia.

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