CoreLogic’s hedonic rental index recorded a further 1.1% rise across the combined capital cities in April, while regional rents were up a smaller 0.5%. Growth in unit rents is significantly outpacing rises in house rents.
Across the combined capital cities unit rents were up 1.6% in April compared with a 0.9% rise in house rents. The larger rise in unit rents continues a trend evident since early 2022, when unit rents started to rise at a faster rate than house rents, reversing the earlier trend of weaker growth in the unit rental sector through the worst of the pandemic.
According to CoreLogic’s Research Director, Mr Lawless, there are several factors contributing to the higher growth rates across the unit sector.
‘It’s likely rental affordability is playing a role; in early 2022-unit rents were around $70 a week cheaper than house rents, however, with unit rents rising much faster than house rents, that gap has narrowed to just $20 a week in April,’ he said.
‘There is also the additional rental demand from overseas migration, especially students, which tends to be more pronounced in inner city areas as well as precincts close to universities and transport hubs that are typically associated with higher density styles of rental accommodation.
‘Another factor playing out is a lack of new unit supply. Medium to high density dwelling approvals have mostly held below average since 2018, setting the scene for a chronic undersupply across the medium to high density sector a few years from now.’
The trend rate of growth in rents is accelerating in Sydney, Melbourne and Perth. Based on the rolling quarterly change, growth in dwelling rents reached a cyclical high of 3.9% in Sydney and 4.2% in Melbourne. Sydney unit rents are recording the fastest rate of appreciation, rising 5.8% over the past three months, followed by Melbourne unit rents, up 5.0%, and Perth unit rents up 4.9%.
Rental growth is set to persist, with vacancy rates holding around record lows in most regions.
‘Until we see rental demand and rental supply becoming more evenly balanced, rents are going to keep trending higher. The unfortunate reality for renters is there doesn’t seem to be any material lift in rental supply over the short term, while demand side pressures are likely to rise further as migration stays high,’ Mr Lawless said.
Housing market has moved through short but sharp downturn
Overall, it looks like the Australian housing market has moved through what has been a relatively short but sharp downturn. For combined capital city dwelling values, the -9.7% drop from the April 2022 peak to a trough in February 2023 was the second largest on record as well as the steepest decline relative to previous downturns. The -10.2% value decline recorded through 2017-19 is the largest decline since CoreLogic records began in 1980.
‘Typically, we wouldn’t see housing values start a new growth cycle until monetary policy started to ease, credit policies loosened or some level of fiscal support was introduced. The shift towards more positive conditions has come about in the absence of these factors,’ Mr Lawless said.
‘The key drivers of this positive inflection seem to be the larger than expected rise in net overseas migration which has created additional housing demand at a time of extremely tight rental conditions and well below average levels of advertised supply.’