Looking Under the Hood of Sydney’s Rental Price Surge

The rental prices in Sydney have surged in the past year, up 24% increase for units and a 10% increase for houses, the fastest annual increase ever recorded by Domain. While the return of international students and foreign workers is a major driver for demand and price increased, there are other factors at play. We have looked at this in a bit more detail to help you understand what’s happening.

A recent article by The Australian revealed that net-overseas migration is expected to reach 650,000 over the two financial years, 2022-23 and 2023-24. This surge in migration is due to changes in the movements of temporary visa holders, such as international students, working holidaymakers, and other temporary or bridging visa holders. The number of students and working holidaymakers in Australia fell by 421,000 from September 2019-21 due to the pandemic but rebounded by 368,000 from September 2021 to February 2023, causing a temporary surge in net migration.

Many temporary residents, including those on bridging visas, did not leave Australia by September 2022 as expected. Additionally, the Morrison government extended eligibility for a temporary employment visa to people in Australia whose temporary visas were due to expire, allowing them to remain in the country. These policy changes enabled people to stay in Australia rather than allowing more people to arrive.

The surge in net migration has put increased pressure on the demand for apartments near the inner city and universities in Sydney and Melbourne, where international migrants prefer to study and work. This has caused significant pressure on the rental housing and unit market.

However, it’s likely the surge in net migration is a temporary phenomenon caused by the pandemic and policy changes enabling temporary residents to remain in the country. It is expected to last for two or three years before net migration returns to pre-pandemic levels as the number of migrant departures increases again.

In Canada, a similar situation has occurred, with net migration exceeding one million people in 2022 – a higher proportional increase than has occurred in Australia.

Overall, while the return of international students and foreign workers is a significant driver for the surge in rental prices in Sydney, changes in temporary visa holders’ movements and policy changes have contributed to the current situation. It is helpful to understand these factors to gain a better understanding of the current rental market as a property investor.

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