Vacancy rate is a key indicator of the real estate rental market.
It essentially tells you how easy it is to find tenants in an area, and investors use this information when deciding whether or not to invest there.
The best markets for property investing have low vacancy rates; these areas offer great opportunities due to high demand with little supply – meaning that renters will be more likely than usual to pay higher rent because they can’t find something else close by!
Investors should keep their eye on vacancies.
If too many properties go vacant at once, then rents could drop as landlords try harder and compete against each other for potential tenants.
High vacancy can be a sign of oversupply or limited demand in the area, which may put downward pressure on property prices, affecting the capital growth potential of the investment.
Changes in vacancy rates can signal future trends.
An increasing vacancy rate may suggest a slowing demand or increasing supply, while a decreasing rate could indicate rising demand or possibly lessening supply, which may affect rental yields and property values in the future.
HTAG Vacancy Rate Methodology
To calculate the Vacancy Rate, divide vacant rental properties by the total number of rental dwellings in the suburb.
- Vacant rental properties are those that remain listed on the market for more than 21 days.
- Rental dwellings are estimated by apportioning the percentage of renter households to the total number of dwellings in the area based on ABS data.
Rental properties typically rent in a month, but this is not always the case.
Every data provider employs different methodologies to calculate metrics, which can lead to variations.
Understanding these methodological differences is crucial when comparing figures from different sources.
For HTAG, our approach to calculating vacancy rates is distinctive:
Rolling Quarter Reporting
We use a rolling quarter basis to compute the metric. This process minimises erratic fluctuations in vacancy rates across monthly data releases.
Other data providers tend to use monthly reporting.
Suburb Vs. Postcode Reporting
Additionally, our vacancy rates are calculated per suburb, while other data providers such as SQM report them by postcode.
Given that postcodes can encompass multiple suburbs, this could lead to disparities in data representation when comparing data across different providers.
Vacancy Counts
HTAG considers each vacancy only within the specific period it first appears, avoiding double counting across different periods.
For instance, if a vacancy emerged 180 days (2 quarters) ago, it is counted as a vacancy only within the rolling quarter leading up to the current period.
In contrast, other providers may list this vacancy as recurring in the current calendar month, as well as previous months.
Our methodology is designed to exclude outdated listings that linger on the market due to factors such as diminished renter interest from property conditions or agents not marking listings as rented.
This approach enables us to concentrate on the current rental market dynamics and assess the performance of recent listings, rather than carrying over data from earlier periods.
Rental Stock Estimates
We estimate rental stock by relying on ABS-published data that identifies the proportion of renters versus owners in a suburb/locality.
This percentage is applied to the latest address data from the Australian address database. i.e. total residential dwellings in a suburb/locality are multiplied by the percentage of renters (divided by 100) to estimate rental stock.
Charts vs Tables Curation Method
The vacancy rate is initially curated on a quarterly basis and resampled to a monthly frequency when presented on our suburb and LGA dashboards for charts:
- Vacancies are derived by dividing the quarterly values by three.
- Vacancy rates are interpolated to transition from quarterly to monthly periods.
However, for tabular data in the ranking table, downloadable reports, and the vacancy count on suburb/LGA dashboard cards, the quarterly values are used.
HTAG Vacancy Rate Methodology Summary
Our entire methodology is shaped by a simple intention:
To accurately capture both current market conditions and long-term / short-term trends, so you can compare markets relative to one another, as close to the point of purchase as possible.
In contrast, other providers may lean toward broad public datasets that fuel media narratives or high-level insights.
The difference isn’t always obvious at first glance, but it matters when the stakes are high.
Even if two metrics share the same name — the underlying measurement, context, and intent may be very different.
| Methodology | HTAG | SQM |
| Reporting Period | Tabular data: rolling quarter Charts: quarterly data resampled to monthly interval | Calendar month |
| Geography | Suburb/Locality | Postcode |
| Vacancy counts | First rolling quarter period | All periods |
| Rental stock estimate | ABS + Address database | ABS |
| Updates | Monthly (last calendar day) | Monthly |
| Property types | Combined (houses & units) | Combined (houses & units) |
The table above sumamrises vacancy rate formula differences between HTAG and SQM.
The differences in methodology also mean that HTAG favourable ranges for vacancy rates are different from other providers:
- High Demand: <1%
- Balanced Demand: 1-3.5%
- Low Demand: >3.5%
What is a Good Vacancy Rate?
Typically, rates above 3% indicate low demand markets.
Property investors should target high demand rental markets to ensure continuous cashflow uninterrupted by tenant churn.
A good vacancy rate for property investors to target often falls between 0% to 3%. This range is typically considered healthy in a well-balanced market.
As a rule of thumb, markets with lowest possible vacancy rate is the safest bet for investment.
Having said that, some capital growth focused strategists may consider markets with vacancy rates in the 2-3% range if other supply and demand metrics indicate a balanced or high demand market.
Learn more about the ranges for low, balanced and high demand markets by visiting our Data Dictionary page.
High vacancy rates can point to a higher risk investment location.
Potential underlying issues may include economic factors such as job losses in the area, or an influx in new developments causing oversupply.
Conclusion
Think of a vendor-specific methodology as a unique measuring stick. In essence, different providers may measure vacancy rates using varying units, much like comparing meters, yards, and inches. Therefore, aligning the methodologies is key when evaluating markets or suburbs in relative terms.
In other words, use the same measuring stick to compare markets. If you measure one suburb in inches and another in meters, you will get skewed results in your relative analysis.
To summarise, HTAG estimates vacancies by counting all rental listings that remain on the market for more than 21 days within the three-month period leading up to our latest data release.
Let’s assume there are 5 rental listings over 21 days on the market as of today. If one of these listings is rented today, it will be removed, leaving just 4 vacant listings visible tomorrow. However, as other listings reach that 21-day mark, new vacancies may emerge.
This illustrates the dynamic nature of vacancy rates, if measured on a daily basis.
By analysing data on a quarterly basis, spanning the previous 90 days, rather than relying on daily snapshots, HTAG’s methodology “casts a wider net” to capture a more comprehensive and consistent view of market conditions over time, minimising the impact of daily fluctuations.
Here are the key points to remember:
- Vacancy rate is a key demand indicator of the real estate rental market.
- Low vacancy rates can make an area more attractive for landlords considering an investment in rental property.
- High vacancy rates usually point to low demand rental markets or markets over-saturated with rental stock.
- Vacancy rate metric can be helpful for current investors deciding between selling or holding onto a property.
- Upward trend in Vacancy Rates is excellent news for tenants, as higher percentages typically signal that rents will not climb as quickly, or even decline.
- If you’re an investor looking for your next property, you should be targeting markets with lower vacancy rates with a diminishing trend.
Remember that while a useful indicator, vacancy rates should not be considered in isolation.
Other factors such as local economy, affordability, and other supply/demand indicators should also be taken into account when making a property investment decision.
Use all data available to help inform your investment decisions and find out which suburbs have higher demand!
Would you like to have more metrics added to our reports? Call them out via the comment form below.
Stock On Market (SOM) as well as SOM Percentage (number of listed stock proportional to total dwellings) would be very helpful.
Thanks! These metrics are targeted for release next month.
Brilliant. What about auction clearance rates?
Also in the pipeline. At this stage clearance rates will most likely be added to reports sometime in June 2021.
trends report to see how over a perid of year DOM, SOM, Inventory levels, vacancy rates are going to identify suburbs moving from low pressure to high pressure
Hi Muhammad,
Trends for these metrics are available on every LGA and suburb dashboard. It’s the 6 graphs at the bottom of the page under Supply / Demand headings.
To get to the area dashboard, just click on the link in the ranking table.
SoM%, SoM LS, SoM SS all showing 0% in almost every report. May I know the reason behind and how to get accurate SoM data
Sounds like you’re looking at the data exported to Excel. Please enable decimals in format options.
In addition, don’t forget to take advantage of joining our Mastermind Community where these metrics and our methodology is explained in detail.
Please check your inbox for an invitation link to join the community if you have a subscription with HTAG. HTAG members get access to additional lelves within the community.
Thanks Alex, great article and well written.
Joey Haidar
I am curious to know why 21 day period is used in the vacancy rate calculation? Why are properties vacant less than 21 days excluded from the calculation? Why aren’t the total number of vacant dwellings irrespective of duration taken? IN many suburbs properties rent out less than 21 days.
“Vacant rental properties are those that remain listed on the market for more than 21 days.”
The vacancy rate calculation uses a 21-day period to distinguish between normal turnover and more persistent vacancies. Normal turnover refers to the brief time — often just a week or two — between tenants when a property is empty. This is a natural part of the rental cycle and doesn’t signal a lack of demand.
Properties vacant for less than 21 days are excluded from the vacancy rate because they typically fall into this category. Including them would inflate the rate, especially in high-demand areas where properties rent out quickly, giving a misleading impression of the market’s health.
The focus on properties vacant for more than 21 days highlights those struggling to find tenants, which is a better indicator of issues like oversupply or low demand. This makes the vacancy rate a more reliable tool for investors. If the total number of vacant dwellings were used instead, regardless of how long they’ve been empty, it would mix these short, expected gaps with longer-term vacancies, muddying the picture of supply and demand.
thank you