Demystifying the rental vacancy rate measure: a critical review and policy implications

Rental vacancy rates are commonly cited in Australia and internationally as a key measure of housing market performance. In real estate economics there is a well-established inverse relationship between rental growth rates and rental vacancy rates across property sub-sectors, including residential, office, industrial and retail property asset classes. Rents and rental vacancy rates variations impact the expected profitability of new construction, future supply of rental housing and affiliated services. 

This project will critically assess the Australian rental vacancy rate, a market signal shaping housing supply and rental policy decisions. The research includes national/international reviews of datasets and methodologies; a critique of the ‘equilibrium’ assumption; and insights on user interpretations and decision-making applications.

The research will address the following questions:

1. What are the methodologies, strengths and limitations of rental vacancy rates indicators in Australia’s private housing market? 
2. How do Australian rental vacancy rates conform temporally and spatially to assumed market ‘equilibrium’ levels? 
3. What insights can be learned from rental vacancy rates methodologies used in other countries? 
4. What role do rental vacancy rates, and their methodological assumptions, play in setting public policy and housing supply decisions, in different market segments and locations? 

The project will unpack how private and public sector users of the rental vacancy rates measure interpret and apply it to their decision-making processes.

Lead Researcher: Margaret Reynolds, Swinburne University of Technology

Project Number: 51328