What Makes Rents Rise And Fall: 5 Reasons For Each

Troy Sheehan
September 8, 2017

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MANAGING DIRECTOR, LICENSED ESTATE AGENT

Whether you’re an investor focused on strong rental yields or a tenant hoping to avoid the next rent rise, predicting rental market fluctuations is actually possible.

Beyond looking at previous price trends, here are the signs to watch out for.

Signs of a rental market about to rise

  1. Low supply. Long lines of prospective tenants waiting outside open houses is just one of the signs that supply in your area may be running low. When there aren’t enough properties to go around, owners often take the opportunity to increase their prices.
  2. Popularity of neighbouring suburbs. Just because your suburb isn’t particularly sought-after doesn’t mean its rental prices will stay low. If prices in neighbouring suburbs increase, this often has a ripple effect.
  3. Improved employment options. Be on the lookout for major developments that might signal more activity for business. Once employers start to themselves to create an employment hub, such as those now established at Dandenong or Clayton, renters will quickly follow to claim their place nearby.
  4. Better public transport. As soon as a suburb becomes more connected to the rest of the city, rental prices are bound to spike. In Melbourne’s east and south-east, projects such as the removal of level crossings and the proposed introduction of new rail lines will have an impact on property prices and rents.
  5. Schools becoming more desirable. If a local school has suddenly shot up on the list of quality education providers in your area, get ready for an impact on property prices and rents. Families will be primarily focused on free-standing properties, but the knock-on effects could also result in a boost to the prices of units and apartment.

Signs of a rental market that could fall

  1. This is the word investors dread and tenants celebrate. If there are simply too many properties in a particular area, those looking for a rental property suddenly have the upper hand and owners will need to start dropping their prices in order to compete. There are signs this could become a problem in central Melbourne eventually, but the outer suburbs are still competitive for tenants.
  2. Decline in new businesses. Darkened shopfronts and ‘for lease’ signs are an obvious sign that small business is struggling in a particular area, which often means rents are about to start on a downward trajectory.
  3. Poor infrastructure. Another factor that may drive prospective tenants away is a lack of public transport options, schools or other key services. School performance in particular can make or break the popularity of a catchment area and surrounding suburbs.
  4. Changing demographics. Demographic shifts can sometimes put downward pressure on rental prices, for example if a suburb traditionally popular for its proximity to a school eventually ages to the point where very few school-age family members are left at home.
  5. Falling property prices. While property prices aren’t necessarily tied to rents, there is some relationship between the two, as both reflect the overall popularity of a neighbourhood.

Predicting a rise or fall in rents isn’t an exact science, but a bit of research into your area will take you a long way, potentially saving you thousands in rental payments or helping you choose the right area for strong rental yields.

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