Over the past few months, there’s been a lot of discussion from me around rising rents.
But I think the bigger story is what happens next.
Because this is no longer just a rental story. It’s becoming an inflation story, a supply story and potentially a policy story.. and they all feed into each other.
I’ve been going through a number of research reports this week and the data is showing that rental growth is reaccelerating.
National rents have been rising at around 0.7% per month over the past three months. That’s pushed quarterly growth to approximately 2.1%, the strongest three-month lift since May 2024.
On an annual basis, rental growth is now sitting around 5.7%, the strongest pace since October 2024.
Importantly, this is all happening while vacancy rates across the capital cities remain well below 2%, with many sitting closer to 1%.
That’s not a balanced rental market. It’s a supply-constrained market that is already under pressure, at a time when affordability is stretched.
Where I think this becomes more interesting is how this feeds into the broader economy.
Rents have a meaningful weighting in CPI and rental inflation tends to flow through with a lag. In other words, some of the pressure we’re seeing in rents today may continue to show up in inflation data over the next 12 months.
That matters when the RBA is considering interest rates.
Now layer potential policy changes over the top.. discussions around taxation, negative gearing, and broader attempts to stimulate housing supply.
Most of these measures are well intentioned. The goal is to increase supply and improve affordability.
But housing supply doesn’t just appear because policy says so.
There’s a significant lag.
New supply can take years to come to market. Feasibility, planning approvals, council processes, permits, access to trades, construction time, and delivery. It’s easily a two to three-year pipeline, and often longer.
At the same time, we’re already dealing with labour shortages and constrained construction capacity. If policy drives more activity into new builds too quickly, there’s a real risk that it places further pressure on construction costs.
That can push build prices higher again, which doesn’t necessarily solve affordability.. it can actually make it worse.
Then there’s the investor side.
If holding costs increase or incentives are reduced, history shows that some of those costs are often passed through. At the same time, fewer investors participating can mean less rental stock available, right when supply is already tight.
That matters when a significant portion of the population relies on rental housing (circa 30%).
Another dynamic we’re seeing is a shift in demand.
While some higher-end markets have softened, that demand doesn’t disappear. It often moves into more affordable segments of the market, where pressure builds more quickly.
If rents continue to firm, yields improve. As yields improve, property becomes more attractive to investors again.
And if that eventually aligns with a rate-cutting cycle, it can create a very different environment to what we’re seeing today.
This is why the moves we’re making for clients right now aren’t based on what happens over the next six months.
They’re about positioning for where we think demand and capital will be flowing over the next several years.
Because by the time stronger yields, improving sentiment and lower rates bring investors back into the market, the opportunity is often already well underway.
Our view is simple.. position before consensus, not after it.
And I genuinely believe that clients who are buying well in this current environment could be very well placed for what comes next.