Cracking the rental vacancy rate: A first-of-its-kind deep dive into the metric shaping housing markets

New AHURI research has critically analysed private rental vacancy rates for the first time, exploring the metrics’ strengths and limitations, and how they are created and used.

The research revealed Australia’s approach to RVRs was unusual internationally and has implications for the public and private entities relying on the metric.

Analysis across 13 countries found most vacancy data was produced by governments and captured all unoccupied dwellings.

Australia meanwhile relied on private companies to produce the metric and generally focused on only vacant rentals.

Swinburne University Senior Research Fellow and study lead Margaret Reynolds said these companies based RVRs on surveys of property managers or rental properties advertised online.

“Different approaches result in different outcomes, and the methodologies used are often opaque,” Ms Reynolds said.

A comparison of two companies’ outputs showed average quarterly RVRs for smaller capital cities varied up to 1.8%. RVRs for larger capital cities were less variable.

“When a 3% vacancy rate is generally the benchmark for a ‘healthy’ rental market, variations between outputs can paint very different pictures,” Ms Reynolds said.

 

“This can have implications for state governments and developers, which take RVRs into consideration when deciding when and where to build housing.”

The common understanding that a 3% vacancy rate represented a market where supply and demand were balanced did not appear evidence-based.

“Vacancy rates vary greatly from city to city, suggesting a need for jurisdictionally-based benchmarks,” Ms Reynolds said.

“Only in Melbourne and Perth does the 3% benchmark appear to be a useful guide over the long-term.”
 

Limits to the metric

The tendency for RVRs to be based on administrative boundaries and single points in time also presented issues.

Researchers found if RVRs drilled down to smaller areas, and tracked over longer periods, they allowed policymakers to better understand market dynamics and trends.

“An area may have a low vacancy rate, but it might have been that way for a long time. It’s only an issue if there’s negative consequences, like sharp rent rises or displacement,” Ms Reynolds said.

 

“It’s often changes in the RVR, or movements away from market equilibrium, where supply and demand are imbalanced, that are most important.”

An analysis of Victoria's private rental market over 13 years was conducted to see how different geographies dealt with low vacancies. It showed rental markets self-corrected faster in Melbourne than regional areas.

Ms Reynolds said there were risks to using RVRs as a lone indicator of rental market health.

“An increasing RVR could be seen as markets self-correcting, but actually be the result of people dropping out of the market and becoming homeless, or overcrowding.”
 

An unaffordable insight for many

There were advantages to having companies produce RVRs, including the ability to purchase off-the-shelf products.

However, Ms Reynolds said commodification of property data meant those who couldn’t pay, like advocacy groups and individual consumers, were left without insights.

There were options for creating publicly available RVRs in Australia.

Analysis of Victorian rental bond data showed it could be used to create an RVR that tracked well against those provided by companies – although inconsistent management of bond data between states limits use of this approach nationally.

The research was undertaken for AHURI by researchers from Swinburne University of Technology and Western Sydney University.