VACANCY? WHAT VACANCY?

Australia’s rental shortage isn’t just a phase. It’s a structural failure - years in the making, Covid merely lit the match.

Vacancy rates fell off a cliff in 2020 and never climbed back. The national average now sits at roughly 1%, a figure that hasn’t budged even as borders reopened, migration surged, and household sizes began to rise again.

We’ve effectively run out of slack. What used to be a balanced market (around 3% vacancy) now feels like musical chairs, minus a few hundred thousand chairs.

So, how did we get here and what would it take to fix it?

How We Ended Up Here

A perfect storm of policy, psychology, and plain old timing.

• Borders closed. When international students and tourists disappeared, inner-city apartments went dark but landlords quickly filled them with local tenants, stripping supply elsewhere.

• Lifestyle migration. The pandemic created the “Byron effect” - city renters chasing coastal calm. Regional markets tightened almost overnight.

• Investors retreated. Tax pressure, tight lending, and better capital gains turned many would-be landlords into spectators.

• Construction stalled. Labour shortages, collapsing builders, and material costs have gutted the pipeline.

• Airbnb rebound. Many long-term rentals went short-term again as travel returned.

In short, demand bounced back fast. Supply didn’t.

Bigger Households, Same Problem

It’s easy to blame smaller households, but that story’s outdated.

People are doubling up again - boomerang kids, housemates, older relatives - all sharing space to manage rising costs.

Household size is actually growing, not shrinking. And still, we’re short.

That tells you everything: this isn’t a demand issue anymore, it’s supply paralysis.

The Shadow Stock

Roughly 580,000 dwellings across Australia sit empty. Holiday homes, speculative investments, future down-sizers’ pads - locked up and off the rental market.

If even 20% of those were leased, national vacancy would almost double overnight.

Five Levers for Change

To restore balance, we need a five-point plan:

• Unlock idle homes. Tax or incentivise owners to rent vacant properties. Extend vacancy levies beyond the CBD.

• Supercharge build-to-rent and land lease. Cut red tape and GST, and fast-track mid-scale developments that can be delivered quickly.

• Free the missing middle. Allow terraces, duplexes, and secondary dwellings in the suburbs where people actually want to live.

• Reset investor incentives. Reward those providing long-term rentals, not short-term speculation.

• Stabilise construction. Underwrite builder finance and back modular housing to avoid more mid-project collapses.

None of this is revolutionary. It’s just overdue.

The Takeaway

Australia’s rental shortage isn’t a blip... it’s a blueprint for what happens when planning, policy, and patience all misfire at once.

Until we tackle the supply side, tenants will keep competing for fewer keys, and vacancy charts will keep scraping the floor.

Let’s stop pretending this is cyclical. It’s structural.

At Ethel + Florence, we track these market shifts daily. If you’re weighing a property decision - buying, holding, or repositioning your investment - let’s talk strategy before the market does it for you.