Vacancy rate is one of the clearest ways to understand a rental market. It shows the percentage of rental properties that are vacant compared to the total number of rental properties in a suburb, city or wider market. This article explains just what is vacancy rate, how vacancy rates are calculated, what current rates can tell investors and why some property owners may link vacancy rate with land tax or vacant property tax.
For property investors, vacancy rate can help explain rental demand, tenant competition, rental prices and the risk of lost rental income. A low vacancy rate often means tenants have fewer properties to choose from. This can support stronger rental prices and faster tenant placement. A high vacancy rate may show weaker demand, more rental supply or poor rental performance in that area.
What is Vacancy Rate?
Vacancy rate measures unoccupied rental units as a percentage of the total rental units in a market. In property, it shows how many rental homes are empty and available for rent at a set point in time. This can apply to a suburb, city, state, national rental market or the wider country.
For investors, this figure helps show how easy or hard it may be to find a tenant. A low vacancy rate usually points to strong rental demand. A high vacancy rate can suggest that more properties are available than tenants who want to rent them which means more waiting and less business for an investor.
A vacancy rate can help property investors understand:
- How strong the tenant demand is in a local area
- Whether rental prices may rise or fall
- How quickly a property may be leased after a tenant’s exit
- Whether there may be too much rental supply
- What they may learn by comparing one suburb with another investment area
Vacancy rate is not the only number investors should review. Property owners should also look at rental prices, population growth, employment, local construction, property type, individual buildings and nearby supply. When used with these factors, vacancy rates can help investors determine market conditions and the part they play in investment decisions. This information is general in nature.
How Vacancy Rates Are Calculated
Vacancy rates are calculated by dividing the number of vacant rental properties by the total number of rental properties in the same market. The result is then multiplied by 100 to create a percentage.
The basic formula is:
Vacancy Rate = Vacant Rental Units ÷ Total Rental Units × 100
Investors should note that vacancy rate data can vary between sources, based on the source or dataset used. Some reports may use advertised rental listings. Others may use broader market data, so investors may estimate vacancy trends differently depending on the source. This is why property investors should compare results across sources and periods before relying on one result.
Example Item | Number |
|---|---|
Vacant rental units | 20 |
Total rental units | 1,000 |
Calculation | 20 ÷ 1,000 × 100 |
Vacancy rate result | 2% |
Vacancy Rates And The Rental Market
Vacancy rates help show the balance between rental supply, rental vacancies and tenant demand. When vacancy rates are low, more rental properties are occupied. This often means tenants have fewer options. Landlords may receive more enquiries, and rental prices may rise. For property investors, low vacancy rates can also reduce the risk of long vacancy periods.
Vacancy Rate Type | What It Usually Means | Impact For Property Investors |
|---|---|---|
Low vacancy rate | Strong tenant demand and limited rental supply | Faster tenant placement, fewer empty periods and possible rental price growth |
High vacancy rate | More rental properties than active tenants | Longer vacancy periods, weaker rental performance and possible rent reductions |
Healthy vacancy rate | A more balanced rental market | Stable tenant demand and more predictable rental income |
Rising vacancy rate | Supply may be increasing or demand may be falling | Investors may need to review rent, property condition and local competition |
Falling vacancy rate | Demand may be rising or supply may be tightening | Investors may see stronger enquiry levels and upward pressure on rent |
Current Rates in Australia for Capital Improved Value
Current rates can help property investors see how rental market conditions change over time and location, with conditions varying across the country. In January 2023, Australia’s national rental vacancy rate was 1.0%. Brisbane’s vacancy rate was even tighter at 0.8% in January 2023, while Melbourne offered another point of comparison. These low vacancy rates suggested strong demand for rental properties and a limited supply of available properties expected for those years.
When reviewing vacancy rate data, investors should look at:
- The suburb or local government area
- The city or regional market
- The quarter or month reported
- The total number of rentals measured
- The number of vacant rental properties
- The source of the data, such as the SQM research
- Whether rental prices are rising or falling
Vacancy rates can move quickly when market conditions change. In April 2019, the national rental vacancy rate was 7%, which showed a much weaker market than the 1.0% national rate recorded in January 2023.
Some property owners also search for the vacancy rate for taxes. This is often linked to land tax, vacant property tax or vacant residential land tax, rather than the rental vacancy rate itself. In some cases, rules may refer to a property’s use, occupancy or capital improved value. Investors should check the current rules in their state or territory before making tax decisions.
Why Vacancy Rates Matter For Property Owners
Vacancy rate gives useful information to a property owner or company when deciding whether an investment property suits their goals. A low vacancy rate can point to strong tenant demand, rising rental prices and fewer empty periods. A high vacancy rate can suggest weaker demand, more vacant properties and possible pressure on rental income. Ensure that you check the news on the rate from the previous year to make good purchase or sales decisions.
For property investors, vacancy rates should not be reviewed alone. They work best when compared with rental prices, local supply, construction activity, population growth, land tax costs where any threshold is relevant, and the property’s overall performance. This gives investors a clearer view of whether an area may support steady rental income over time.
If you own an investment property, a tax depreciation schedule may help you claim eligible depreciation deductions and improve your after-tax cash flow. Get a free quote today from Thrifty Tax’s contact page or browse our website for more information on your tax depreciation schedule.
