Victorian Rental Market Declines as Investor Sell-Off Accelerates
Victoria's rental market is shrinking rapidly, driven by an accelerating sell-off by property investors. Over the course of a year, the state's rental stock decreased by more than 24,700 properties, reflecting a significant shift in market dynamics.
Declining Rental Stock
The number of active rental bonds in Victoria dropped from 677,492 in September 2023 to 652,766 by September 2024, representing a 3.6% decline in rental properties. The pace of this reduction has been increasing, with 9,498 properties lost in the final quarter alone—the fastest recorded decline since data collection began in 1999.
This trend was particularly pronounced in metropolitan areas, where rental bonds fell by 4.2% over the year, equating to a loss of 23,108 rentals. Regional areas experienced a smaller decline of 1.3%, or 1,588 fewer rentals.
Falling Rents Despite Tight Supply
Despite the shrinking rental pool, Melbourne rents fell by 0.4% in the second half of 2024, driven by a 1.1% drop in unit rents, while house rents remained unchanged. Vacancy rates rose to 1.7% in Melbourne, nearing pre-pandemic averages, reflecting reduced demand due to slower migration and larger household sizes.
According to CoreLogic’s Tim Lawless, the rental property sell-off stems from high taxes, low yields, poor capital gains, and rising interest rates. Investors have increasingly favoured markets like Western Australia and Queensland, which offer stronger growth and better yields.
House Prices Drop, Benefiting First Homebuyers
The investor exodus has coincided with a 3% decline in Melbourne house prices in 2024, offering opportunities for first homebuyers. Melbourne’s median house value now sits at $774,000, significantly lower than Brisbane, Adelaide, and Perth.
While Melbourne and other southern capitals saw price declines, property markets in Perth, Adelaide, and Brisbane experienced double-digit growth.
Investor Sentiment and Policy Impact
Investors cite high taxes, restrictive tenancy laws, and rising interest rates as primary reasons for exiting the Victorian market. Changes like the removal of no-fault evictions and increased land taxes to fund COVID recovery have added to the challenges.
The Victorian government has attempted to attract investment with measures like reducing stamp duty on new apartments, but experts view these moves as reactive rather than transformative.
Outlook
Looking ahead, slowing migration and larger households are expected to ease rental demand through 2025. However, if international student numbers rebound, rental prices could rise sharply, reversing recent trends.
While Melbourne offers medium-term growth potential, persistent high taxes and regulatory challenges are likely to continue dampening investor appetite. For now, markets in Western Australia and Queensland appear to offer more attractive opportunities for property investors.
( Graph Source : CoreLogic Monthly Housing Chart Pack)