Households choose to rent as high interest rates make homeownership unattainable

High interest rates are pushing households to choose the rent option instead of homeownership, according to a survey. Picture: Freepik

High interest rates are pushing households to choose the rent option instead of homeownership, according to a survey. Picture: Freepik

Published Jun 26, 2024

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Residential rental vacancies have hit their lowest levels since 2016 as the demand for rental property has surpassed supply amid declining home ownership due to high interest rates.

This is according to the TPN Credit Bureau Vacancy Survey Report Q12024 which measures the number of vacant full-title and sectional-title residential units.

Waldo Marcus, Industry Principal, TPN Credit Bureau said that people are renting as high interest rates continue to make ownership unattainable.

Marcus said that the trend towards renting instead of buying property will continue as interest rates remain high.

“Interest rates have remained at a 15-year high for six consecutive quarters which continues to place indebted consumers under pressure,” Marcus said.

Property market and economists had expected interest rates to start decreasing towards the second half of 2024, however, heightened uncertainty means that any interest rate cuts remain on hold.

Demand for rental properties

Nationally, 4.42% of rental properties were vacant in Q12024 which is lower in comparison to the 6.69% in the previous quarter. In 2016, the national average vacancy rate was 6.53%.

The TPN Rental Market Strength Index which measures perceived demand and supply within the rental market was at 59.66 points.

“When perceived demand equals supply, the market is at equilibrium at 50 points. The current rental market is 9.66 points above equilibrium due to higher demand than what is available within the rental market,” Marcus said.

This indicates optimistic sentiment within the residential rental market, given low vacancies and positive rental growth. The overall supply rating in Q12024 is at 57.54 points and demand is at 76.85 points.

The Rental Market Strength Index improved across all rental value bands in Q12024.

The R12,000 and R25,000 per month rental band had the highest index at 61.56 points, followed by the R3,000 and R4,500 band with a rental strength score at 59.43 points.

“The mid-level rental value bands recovered from the previous quarter’s drop when demand decreased, while supply remained strong, negatively impacting the strength index,” Marcus said.

Increased demand and balanced supply are reflected in the improved occupancy levels of all rental stock.

Marcus said: “The most noticeable vacancy decrease is within the rental value bands of R3,000 or less a month and R4,500 to R7,000.”

“Vacancies in the rental value band of less than R3,000 per month decreased from 8.46% in the Q42023 to 4.51% in the first quarter of 2024, with demand improving while supply remained stable.”

Reduced vacancies in the R4,500 to R7,000 rental price bracket, he adds, are due to increased demand and a decrease in supply. Vacancies were reduced in this bracket from 8.17% in the fourth quarter of 2023 to 4.92% in the first quarter of 2024.

Province by province

The vacancy rate in the Eastern Cape decreased to 3.54% in Q12024. Improved occupancy is due to higher demand in the province.

The percentage of Eastern Cape households that live in rental properties is the lowest of all provinces, with 12.7% relying on rented accommodation.

KwaZulu-Natal has a total of 17.3% of households paying rent. Improved demand and a decrease in supply resulted in vacancies in the province decreasing from 10.5% to 6.41% between the Q42023 and the Q12024.

The Western Cape continues to boast the lowest number of vacant rental units in SA at 1.51%. Rental demand increased from 85 points in 2023 to 90 points in 2024. A total of 27.8% of households rent.

While lower residential rental vacancies are good for property owners and investors, Marcus warns that investors should be cautious as strained household budgets could result in tenants defaulting on their rentals.

IOL Property