Inner-city demand has helped drive Melbourne’s median rental cost for a unit past that of a house.
Melbourne’s “totally dysfunctional rental market” has reached a bizarre new milestone, with units now more expensive to lease than houses.
And with the city’s average renter now paying more than $30,000 a year for either type of home, industry groups have warned it’s a major alarm bell for the state’s housing crisis.
PropTrack data tracking what homes were advertised for across the city in March found the median unit, including townhouses, flats and apartments, would set renters back $600.
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Houses were typically being offered for $580 — the cheapest median rent for a capital city anywhere in Australia by $40.
When the PropTrack report was last run, Melbourne’s two home types were neck and neck at $575 a week.
The latest growth spurt means it now costs a typical house renter $30,160, while those leasing a middle-of-the-road unit pay $31,200 for 12 months.
PropTrack economist Luc Redman said the situation was an “interesting one” that likely pointed to a higher prevalence of rental houses being available in outer suburbs, and a greater concentration of leased units in areas closer to the CBD where houses are more often lived in by their owner.
Victorian tenants are facing bizarre rent hikes that have pushed unit prices higher than houses.
The growing demand for the units was likely being driven by a mix of returning population and a reversal of a Covid-era trend of people moving to outer areas for space amid a push towards working from home.
“It’s starting to see that rebound, with a lot more of internal migration showing people want to be living closer to the city, particularly if renting, where there’s higher amenity and jobs,” Mr Redman said.
The economist added that vacancy rates had improved in Melbourne, rising from 1 per cent a year ago to 1.5 per cent in the latest stats.
However, it still remains well below the 3-4 per cent vacancy rate generally considered healthy for the rental market — meaning tenants continue to face cost hikes.
“It’s certainly the case that wages haven’t been able to keep up with rental or house price growth,” Mr Redman said.
Tenants Victoria chief executive Jennifer Beveridge says the news is grim given units were supposed to be a way for renters to save money.
Tenants Victoria chief executive Jennifer Beveridge said units were “supposed to be the affordable option”.
“The fact that units now cost more to rent than houses is a sign of a totally dysfunctional rental market,” Ms Beveridge said.
“Losing that option is devastating for renters. It’s what happens when even the cheaper options stop being affordable.”
Noting that a well-functioning market gave renters options, she warned the current situation had every segment “under the pump” and renters facing “enormous pressure on their budgets”.
Property Council of Australia Victorian executive director Cath Evans said with the state falling 25,000 homes short of state government targets last year, the rise in unit rents was a “warning sign”
The Property Council’s Victorian executive director Cath Evans says the state is not keeping up with demand when it comes to new housing construction.
“We’re simply not building enough housing to keep up with demand,” Ms Evans said.
“Rising construction costs combined with increased taxes and regulatory complexity mean that many projects are becoming unviable.
“At the same time, investors are becoming increasingly uncertain about Victoria, and we’re already seeing the consequences with more selling out of the market.”
She added that the fuel crisis was also a growing factor in delaying the apartment projects needed to stop rental prices surging.
“If we want to put downward pressure on rents, we need to get more homes built, and that means restoring investor confidence,” Ms Evans said.
“Ahead of the state budget, the priority needs to be on targeted tax relief and faster project delivery to unlock new housing supply.”
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