Sydney’s Rental Market Trends and Forecasts

They also increase the cost to run a rental property thereby reducing investment returns.

Whilst tighter rental laws have reduced investor demand (and therefore the number of rental properties available), I think it’s only been at the margin.

That said, any further regulation would most likely have a material impact on rental supply.

Tenants must be protected, but a healthy rental market is equally if not more important.

Not only that but residential property investment by foreign buyers has also tapered, again thanks to new government regulations, rules, and fees put on overseas buyers.

Confidence issues following the deterioration and defects of many high-profile high-rise blocks such as the Opal Tower have also weighed on confidence.

International property firm CBRE estimates that a severe undersupply of new apartments will be with us for at least the next five years.

CBRE estimates Sydney apartment delivery will average 14,000 per annum over 2024 -28, while the demand for housing stock is likely to average 33,000 per annum over the next five years.

Of course, this will only drive down vacancy rates further and push up rentals.

Off-the-plan apartments are an investment plan I would always tell investors to steer well clear of, but the problem is that without new housing our rental crisis will never improve.

Source: CBRE

4. Sydney’s population is growing

With the opening of international borders in early 2022, Sydney has become a major recipient of new residents, both skilled immigrants and overseas students, putting extra pressure on the Sydney property market, particularly the rental markets.

Sydney’s population grew 2.0% over the year ending 31 March 2024, according to figures by the Australian Bureau of Statistics (ABS).

Exclusive forecasts by demographers consulting business, Informed Decisions (.id), reveal that the nation’s population is forecast to grow by 7.4 million by 2041, requiring an additional two million dwellings across our four major cities which will account for over 65% of the forecast population growth.

And New South Wales population will account for 1.7 million of this forecast, with 1.2 million occurring in Greater Sydney and requiring 582,000 additional dwellings.

According to the ABS data, New South Wales’ population of 8.2 million is projected to grow by between 0.4% and 1.2% per year, slightly higher than the average annual growth rate projected for Australia, and reach between 9.2 million and 9.6 million by 2032, and between 10.8 million and 13.8 million by 2071.

Source: ABS

Sydney has become a popular destination for people moving to Australia, and this influx of newcomers has put pressure on the city’s housing market.

As more people move to Sydney, the demand for rental properties increases, leading to a decrease in the vacancy rate.

And all these people need somewhere to live…

5. Sydney’s economy is strong

Sydney’s strong economy is also contributing to the dire state of its rental market.

The city has a thriving job market, with many opportunities in industries such as finance, technology, and tourism.

Note: As more people are employed, they are able to afford rental properties, further driving down the vacancy rate.

6. Sydneysiders are moving back to the city

During the COVID-19 pandemic, there was a huge outpouring of Sydneysiders into regional NSW, and many flocked north to Queensland in search of lifestyle suburbs and more affordable properties.

But now many businesses have called their staff back into the office… and that means returning to live in the city rather than regional locations.

The vacancy rate for Sydney’s CBD offices came in at just 11.6% for Q3 of 2024, meaning occupancy rates are over 85% which is around the pre-pandemic level.

Also, Sydney transport data shows that foot traffic at one of the city’s most major train stations (Wynyard) in September have reached close-to pre-pandemic levels.

Opal data also shows that the number of Sydneysiders using the transport network has risen to around 80% of pre-pandemic levels.

7. What we want in a home has changed

In Sydney, homebuyers are increasingly ditching their preference for a separate study area in favour of a granny flat.

In 2023, ‘study’ was the second-most used keyword in property searches, but in 2024 that dropped to 5th place as employers drawing workers back to the office means that they no longer need a dedicated working area at home.

At the same time, the increasing number of people searching for granny and granny flat in Sydney indicates a potential rise of buyers looking for intergenerational living, Nicola Powell, Domain’s chief of Research and Economics said in a recent report.

More people are also searching for dual occupancy, which also says a lot about the poor affordability and buyers wanting more value for their money.

Nicola Powell

While this is yet another shift in what Sydneysiders are looking for in a home (amid and post-covid-19 restrictions buyers prioritised spacious living and separate study areas while they juggled work, study and family commitments all under one roof).

Census data shows that the share of households with just one person in them increased significantly from 2016 to mid-2021.

There were fewer households with three or more people.

In aggregate, the average household size fell from 2.59 to 2.55 and while it doesn’t sound like a large fall, it translates to around 160,000 additional dwellings nationwide.

8. Sydney’s rental prices are surging

And all these factors are causing…. High rental prices throughout Sydney.

The good news is that the latest Domain report reveals that Australia’s era of explosive rental growth appears to be nearing its end.

After enduring the steepest and longest rental surge in history, all capital cities have passed their peak in growth rates and have now stalled or even begun falling in some areas.

In Sydney, house rents reaccelerated in the September quarter, rising about 1.5 times faster than in the previous quarter – up 2% or $15 – to reach a record $775 per week.

But despite this renewed momentum, it still remains the weakest outcome for a September quarter in four years, with annual gains now at their lowest in almost three years.

Sydney unit rents remained steady over the September quarter (the first steady quarter this calendar year), holding at a record $720 per week.

This marks the weakest September quarter outcome in four years.

The stability has significantly eased annual growth, which is now at its slowest in almost three years (at 5.9%) and four times slower than last year (when rents rose 23.6%, close to a record pace).

SQM data shows how Sydney’s rental growth has slowed over the past quarter across both houses and units.

Just a year ago the city was recording an annual increase of over 13%, but today that has dramatically slowed to the 2.5-3.5% range.

Sydney’s Rents Index

Source: SQM Research

Is there a rental crisis in Sydney?

In short, yes.

Continually low vacancy rates combined with a low supply of new dwellings, a low volume of investors, high demand, and a rising population have created a perfect storm of factors keeping Sydney’s market in a “rental crisis”.

Not only that but there is no end in sight… in fact, it’ll probably just worsen further.

Here’s why.

Given the stark imbalance between supply and demand, it is unlikely there will be much relief for renters over the short- to medium-term with stock levels unlikely to increase substantially anytime soon.

Net migration into Sydney is forecast to remain strong for some time yet and this will only add further upward pressure on rental values.

Tenants coming up against affordability constraints have limited opportunities and unlike homeowners can’t borrow to pay rent.

It’s likely some tenants are now sacrificing the spare room or home office and re-forming shared houses that disbanded throughout COVID in order to share the rental burden.

Those who have the financial means to pull together a deposit might be taking the plunge into homeownership sooner while others are locking in longer leases, rather than brave the hunt for a new rental.

And government attempts at intervention are only making matters worse…

Current policies are not supportive of attracting more private property investors to supply rental accommodation.

Sure the government is looking for large corporations to get into the ‘build to rent’ segment, but this will take time and only occur in certain locations meanwhile an uptick in international students will create even more demand – and where will all these people live?

The new government policies won’t even tackle half the issue, while some might even make it worse.

For example, NSW has appointed its first rental commissioner to help tackle the rental crisis in Sydney, with plans to focus on making the rental market fairer for tenants.

Promoting longer-term rental agreements, monitoring existing laws, and ending terms like no-ground evictions or portable bond schemes.

While the changes might be good news for tenants, they will also act to remove some rights and protections for landlords and investors.

Tighter rental laws (that favour tenants) reduce the amount of control investors have over their property.

They also increase the cost to run a rental property thereby reducing investment returns.

Whilst tighter rental laws have reduced investor demand (and therefore the number of rental properties available), I think it’s only been at the margin.

That said, any further regulation would most likely have a material impact on rental supply.

Tenants must be protected, but a healthy rental market is equally if not more important if we want to avoid the level of rental stock trending further downwards.

Why is rent so expensive in Sydney?

Sydney has always been notorious for its high-priced real estate, continuously holding the title of having the country’s most expensive rental properties.

But now, the average rent in Sydney is at a record high.

Sydney’s combined median dwelling rent reached $833.07 in September, it was level over the past quarter and up 2.8% over the year.

That’s far higher than the $630.42 median nationwide.

So why is rent so expensive in Sydney?

Sydney’s property market has long suffered an imbalance between its housing supply and strong demand.

The city is also home to some of the country’s most elusive suburbs, which have helped to drag the city’s median rental price up.

In 2024, Sydney also ranked as one the 24th most expensive cities in the world, further making it exclusive and in strong demand, which would also push up rental prices.

Why is there a rental shortage in Sydney?

Again, the imbalance between supply and demand is to blame here.

There are fewer rental properties in Sydney today because there are fewer investors buying property (owner-occupiers have dominated the market) and more investors have exited the market and sold up.

According to data by PropTrack, approximately 15% of vendors are investors (i.e., people selling their investment properties), versus 20-25% during the Covid property boom when investors took the opportunity to cash out while prices were high.

For the 6 years between 2017 and 2022, 31% of all new loans were made for investment purposes compared to 38% for the previous 14-year period between 2002 and 2016.

This suggests that over the past 6 years, there have been 20% fewer investors, probably due to the government/regulator intervention (e.g., interest only, tax policies, etc.), as mentioned at the beginning of this blog.

At the same time, the supply of new builds is also thin.

During the pandemic, soaring materials and construction costs meant that fewer new dwellings were completed.

Significant government support for the construction industry, such as HomeBuilder, increased the number of houses that were constructed (and are still under construction).

But this was offset by reduced unit construction which has longer construction times meaning overall fewer properties have been constructed versus before the pandemic.

At the same time, things such as higher building and materials costs, worsened by inflation mean there has been an uptick in the number of building companies going into insolvency.

Sydney’s rental prices by suburb

Corelogic’s latest quarterly rental review report for Q3 of last year shows that Sydney remains the country’s most expensive rental market across all property types, with the typical dwelling costing $726 per week.

It was Sydney’s harbourside suburb of Vaucluse which came in as the city’s (and also the nation’s) most expensive suburb to rent a home, with the median weekly rental costs sitting at a whopping $2,588 and a 1.67% yield.

It’s somewhat unsurprising though given that the median house price in the area comes in at just over $9.3 million.

Second and third on the list are also located in Sydney’s affluent eastern suburbs.

Bellevue Hill has a median rent of $2,240 and a 1.43% yield, while Rose Bay’s $2,270 median rent gives a gross rental yield of 1.83%.

In fact, Sydney’s Eastern Suburbs account for 9 of the top 10 most expensive suburbs on the list.

Mosman in Sydney’s North is the exception, with its $1,921 per week rent and 2.07% yield.

Sydney’s Eastern Suburbs, Northern Beaches, and North Sydney also dominate the top 30 on the list.

Meanwhile, one Sutherland Shire suburb, Burraneer, came in 28th place – renters in the area can expect to pay $1,482 per week for a property.

Here’s the full list of the most expensive rental prices in Sydney, all of which are houses.

Top 30 most expensive suburbs to rent in Sydney

Source: Corelogic quarterly rental review

But Sydney’s most expensive suburbs for rental prices don’t give the full picture of the city’s rental market – reviewing the list of the most affordable suburbs for rent also helps to give a good idea of how rental prices differ across the city.

Corelogic’s data also shows the city’s most affordable suburbs to rent a property are all clustered in the Inner West, Outer West, and South West regions, with some Central Coast suburbs also making the list – and all but one are units.

Renters might not be able to afford the $2,588 per week required to live in Vaucluse, but in the West and South West, there are 2 suburbs where the median unit rent is under $400 per week, and a further 11 suburbs where unit rent is under $450.

Carramar comes in with the lowest price, at just $389 per week and giving a huge rental yield of 5.16%.

Cabramatta, Canley Vale, Berkeley Vale, Fairfield, Leumeah, and Jamisontown all also make the lower end of the list, with median unit rents ranging from $389-430 per week.

Then up on the Central Coast, renters can secure a unit for around $430 in Wyong, $437 in Gorokan, $473 in The Entrance, and $488 in Long Jetty.

The most affordable houses on the list are found in Tregear, Blacktown, where renters can expect to pay $487 per week.

Top 30 most affordable suburbs to rent in Sydney

Source: Corelogic quarterly rental review

Sydney’s rental market forecast

Looking ahead, there is no end in sight for the Sydney rental crisis as immigration numbers are expected to continue to remain high, the pipeline of new property supply is thin and investors are exiting the market thanks to higher costs and concern and uncertainty about government interference and restraint.

This means we will likely continue to see low vacancy rates and high rents in the coming months.

The current tightening of all of the cities’ rental markets will reduce choice, increase competition for rentals, and exacerbate less favourable rental conditions for tenants overall.

Domain’s chief of research and economics, Dr Nicola Powell, said although Sydney recorded the weakest quarterly growth in four years for houses and units, it was still tough for renters. She said the slowdown in rental increases was due to factors such as migration passing its peak and compromises made by renters to make ends meet.

​​It is a landlord’s market in Sydney. We’ve got a tight vacancy rate below 2 to 3 per cent (which is a more balanced market).

What this is showcasing is the supply and demand imbalance across Sydney’s rental market.

Those compromises have been occurring in Sydney for a while and that is because of continued rent increases and tenants have faced continued financial strain.

We’ve seen rents continue to rise where they have been no match for wages growth, then layer on the cost of living crisis.

Renters are compromising on location, property type, getting a share house or moving back in with mum and dad.

Nicola Powell

A final note for investors

While Sydney’s property market might not seem attractive for investors right now due to high costs, government interventions, and a low supply of property for sale, it’s important to remember that property investment is a long-term game.

Don’t try to time the market – this is just too difficult.

And don’t hunt down a bargain.

All investors should focus all their efforts on buying an investment-grade property in an A-grade location.

These types of properties are in short supply but are still selling for reasonably good prices.

Plus they’ll hold their value far better in the long term.

While it might feel counterintuitive to buy at this point of the property cycle, you can also benefit from less competition, low consumer sentiment, having more time, and minimal risk of oversupply.

Remember, the rental crisis is only worsening further, with no end in sight.

Now would be a great time to buy an investment property and enjoy high demand while trying to be a part of the solution for Sydney’s rental crisis.

In the medium term, the Sydney property market will be underpinned by 3 factors:

• A significantly growing population
• Strong jobs creation
• Increasing the wealth with more high-paid knowledge workers.

I see the current market offering a window of opportunity for property investors with a long-term focus.

About Leanne Jopson
Leanne is National Director of Property Management at Metropole and a Property Professional in every sense of the word. With 20 years’ experience in real estate, Leanne brings a wealth of knowledge and experience to maximise returns and minimise stress for their clients.