Australia’s rental vacancy rate has fallen to 1.2%, giving landlords more power to increase rents. However, experts caution that pursuing higher returns too quickly could backfire, especially if it results in the loss of dependable tenants. With rents rising by 23% over the past five years in some areas, affordability is already stretched and tenants under pressure may choose to leave.
Although raising rents may seem appealing due to the current market and recent interest rate increases in 2022 and 2023, keeping reliable tenants has become more important than ever. Real estate professionals recommend moderate annual rent increases of around 5% to 7%, rather than sudden jumps that can upset tenants and lead to costly vacancies.
While average rents have risen sharply, tenant incomes have not kept pace. The median weekly rent in Australia now stands at $671, which takes up about one third of a household’s income. This leaves many tenants close to their financial breaking point, meaning even modest rent rises can become unaffordable. Property experts advise landlords to consider their own rising costs alongside the risk of longer vacancies if tenants are forced to move out.
The consequences extend beyond individual properties. Replacing a good tenant can lead to up to eight weeks of lost rent due to vacancy periods and re-letting expenses. A poorly managed rent increase could wipe out the financial benefit it was intended to deliver. For this reason, landlords are encouraged to take a strategic approach by implementing small annual increases based on market conditions and tenant reliability. Many states only allow one rent increase per year and require proper notice, making careful planning even more essential.
Rental market uncertainty is likely to continue. Limited investment in new housing and strong population growth are keeping pressure on rental supply. However, tenant affordability now acts as a limit that landlords cannot disregard. Many savvy investors are setting rents slightly below market rates to ensure long-term occupancy and reduce vacancy risks, favouring stability over short-term gains.
