Residential rental vacancies hit historic lows in 2024

Key highlights:

• Historic low vacancies: The national residential vacancy rate dropped to its lowest level since 2016.
• Demand surpasses supply: A surge in rental demand amidst declining home ownership.
• Impact of high interest rates: Elevated interest rates continue to deter home ownership.

Low vacancy rates driven by high demand

The latest TPN Credit Bureau Vacancy Survey Report for Q1 2024 reveals that residential rental vacancies have plummeted to their lowest level since 2016. This significant drop is attributed to a robust demand for rental properties as more households opt to rent rather than buy, influenced by persistently high interest rates.

Increasing rental demand

Waldo Marcus, Industry Principal at TPN Credit Bureau, notes that high interest rates, sustained over six consecutive quarters, have made home ownership unattainable for many. Consequently, the rental market has become increasingly competitive, with more households turning to renting. “Interest rates have remained at a 15-year high for six consecutive quarters which continues to place indebted consumers under pressure,” he says. Both the property market and a number of economists had expected interest rates to start decreasing towards the second half of 2024.

Economic influences on the rental market

Despite expectations for interest rate cuts in the latter half of 2024, economic uncertainties have kept rates elevated. This has compounded the challenges for potential homeowners, further boosting the rental market.

Statistical insights

• A decline in home ownership: Stats SA’s General Household Survey indicates a drop in home ownership from 64.4% in 2022 to 62.9% in 2023.
• Increase in renters: The percentage of households renting rose from 22.5% in 2022 to 23.9% in 2023.
• Lowest vacancy rates: The national residential vacancy rate fell to 4.42% in Q1 2024, down from 6.69% in the previous quarter.

The survey measures the number of vacant full-title and sectional-title residential units, providing the most comprehensive and complete overview of the industry.

Rental market strength index

The TPN Rental Market Strength Index, which measures perceived demand and supply, stood at 59.66 points in Q1 2024. Although lower than the 2016 average of 64.73 points, it indicates a robust rental market with demand surpassing supply.

Regional insights

• Gauteng: The highest rental percentage at 37.8%. Vacancy rates dropped from 8.14% to 4.3% in Q1 2024.
• Eastern Cape: Vacancy rates decreased to 3.54%, with the lowest percentage of rental households at 12.7%.
• KwaZulu-Natal: A significant drop in vacancy rates from 10.5% to 6.41% between Q4 2023 and Q1 2024.
• Western Cape: The lowest national vacancy rate at 1.51%, with a strong demand increase from 85 points in 2023 to 90 points in 2024.

According to Stats SA’s latest General Household Survey, Gauteng has the highest percentage of households renting at 37.8%, compared to 35.9% that live in fully paid, owned properties,10.5% that live in owned, but not yet fully paid properties, while the balance occupy property rent-free. Vacancies reduced from 8.14% to 4.3% in the first quarter of 2024, primarily driven by improved demand. Supply had a marginal decrease, taking the province’s Rental Market Strength index to 51 points, the highest since 2018.

The vacancy rate in the Eastern Cape decreased to 3.54% in the first quarter. Its improved occupancy, explains Marcus, is due to higher demand resulting in a Market Strength Index of 58.33 points. The percentage of households that live in rental properties is the lowest of all provinces, with 12.7% relying on rented accommodation, 65.6% living in fully paid and owned properties, while 3.1% are still paying instalments towards ownership and 18.6% live rent-free.

KwaZulu-Natal has the highest percentage of households living in owned properties with 74.6% of people either owning their property outright or in the process of paying off their property. A total of 17.3% pay rent for their accommodation and 8.1% live rent-free. Improved demand and a decrease in supply resulted in vacancies in the province decreasing from 10.5% to 6.41% between the fourth quarter of 2023 and the first quarter of 2024.

The Western Cape continues to boast the lowest number of vacant rental units in the country at 1.51%. Rental demand increased from 85 points in 2023 to 90 points in 2024. The rental market strength index increased to 73 points as the supply rating decreased from the fourth quarter of 2023 to the first quarter of 2024. A total of 27.8% of households rent, while 49.2% live in a property that is fully paid off and 14.2% are in the process of paying off their property. The Western Cape has the lowest percentage of households that occupy rental property rent-free at 8.8%.

Rental value bands performance

The Rental Market Strength Index improved across all rental value bands in the first quarter of 2024. 

• R12,000 - R25,000: Highest rental strength index at 61.56 points.
• R3,000 - R4,500: Notable increase to 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,” says Marcus.

“The most noticeable vacancy decrease is within the rental value bands of R3 000 or less a month and R4 500 to R7000. Vacancies in the rental value band of less than R3 000 per month decreased from 8.46% in the fourth quarter of 2023 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.

The current landscape of low rental vacancies benefits property owners and investors, offering improved security and reduced income loss risks. However, Waldo Marcus cautions investors to consider the economic pressures on household budgets that might lead to increased tenant defaults. Strategic considerations of location and rental value bands remain crucial in this high interest rate environment.