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Sydney rents set to surge

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The rental vacancy rate in Sydney fell from 1% to 0.9% in May, according to the Real Estate Institute of NSW, squeezing the tight rental market even further.

The vacancy rate stood at a 20-year low of 0.8% in October 2007, and tight conditions have been maintained over the following seven months.

"Australia's rental crisis is showing no signs of easing," said Craig James, chief equities economist at CommSec.

"The population is growing at the fastest rate in 18 years, buoyed by record migration, but building of homes and apartments hasn't kept up. Federal and state governments still seem to be working on the view that the market will eventually adjust, but there are few signs of that occurring."

James said that removal of stamp duty on the construction of new investment properties would "certainly ease the situation", together with rezoning of industrial land close to cities.

"Without governments fundamentally addressing the mismatch between supply and demand, rents and house prices will continue to soar, weighing on consumer budgets and putting upward pressure on inflation and interest rates," he added.

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