PMI Mortgage Insurance’s Residential Rental Outllook Report shows rising rents will make owner occupation a more attractive option for most people in 2011.

“Demand for rental property will continue to exceed availability, which will place further pressure on rents and vacancy rates until there is a significant pick up in construction and supply in 2010-11,” Ian Graham, CEO of PMI said. “As a consequence, rents are expected to rise by 8-11% annually in major capital cities across Australia during this period.”

The rental market has tightened considerably across Australia over the last 18 months, with significant rental growth emerging in all capital cities.

Western Australia has led the growth, with a 12.1% increase in rents in the year to March 2008, followed by Queensland (9%), Northern Territory (8.6%), ACT (7.5%), New South Wales (6%), Victoria (5.6%), South Australia (5.1%) and Tasmania (4.9%).

Despite the strong increases in rents over the past 12 months, rents remain at more affordable levels due to equally strong rises in income.

Median household income in rental households generally increased at a higher rate than the median for total households between 2001 and 2006, suggesting that higher income groups increasingly opted for rental ahead of owner occupation.

The report forecasts equally strong rises in income, with median rents to remain at a similar portion of median household income. From an affordability perspective, this suggests there is scope for rental growth over and above income growth.