In Sydney, rent prices aren’t just breaking the bank, they’re also breaking records. At a median of $560 per week, rents are now the highest they’ve ever been.

Meanwhile, across Australia, house prices have posted their largest fall on record (-8.4%). While there’s a myriad of reasons for the turbulence—rate hikes, inflation, cost of living, wage stagnation, take your pick—a new factor has come into play: the return on international students.

Earlier this month, the Chinese government issued a directive to all students enrolled in foreign universities to return to face-to-face learning after finally reopening their borders. An estimated 50,000 students are expected to enter the country in the coming weeks and months, likely putting extra strain on an already tight rental market.

Vacancy rates in inner city suburbs have already begun to dwindle as remote workers return to the office, migrant workers re-enter the city, and seasonal holiday lows make a turn-around. According to recent data from PropTrack, Sydney’s current vacancy rate is 2.06%, down a whopping 38% compared to December 2021.

With the return of students, it is expected that vacancies will quickly drop to below 1% in most inner-city suburbs and beyond. Nationally, the percentage is already lower, with Domain’s January Rental Vacancy Rate Report revealing its back to its lowest point on record at just 0.8%.

Competition is at an all-time high, with an estimated 15 renters for every 1 rental property. There are reports of 50-80 potential tenants packing out inspections, and upwards of 15 applications per rental. Inner city suburbs close to universities have been the first to feel the effect of the heightened demand, with unit rent prices in Haymarket, Ultimo, and Millers Point rising by more than 15%.

While experts have forecast a 5% rent increase in Sydney’s inner-city suburbs in the coming months as international students return, many have already been hit with lease increases. That’s on top of a 10% increase in median rents within the past 12 months. Short supply vs heavy demand has put incredible pressure on rental prices, with rents on properties increasing by more than $200 per week in some instances.

On the upside, the influx of international students from China and beyond is set to supercharge the recovery of the student accommodation market which was hit particularly hard during the pandemic. Spilling over into private rental markets, the return also spells good news for inner city investors.

While units fell out of favour during lockdown as renters sought larger and more remote spaces to work from home, their popularity (especially among students) is booming due to their affordability in comparison to houses. House rents increased by 5% over the calendar year and now average $630 per week, whereas the median rent on units in Sydney is now $530 per week. Are further increases on the horizon? Semester 1 commences in next week.