Rental markets are showing multi-speed conditions, with most of the capital cities experiencing an upward trend in rental growth in 2022, according to CoreLogic.


Nationally, rents were up 2.7% over the three months to April, taking the annual change in national rents to 9.0%. A year ago, the annual change in national rents was 4.9%.


Based on the annual change, house rents (+9.1%) are rising faster than unit rents (+8.7%), however this trend is changing sharply as demand for unit rentals increases.


“On a rolling quarterly basis, we are now seeing unit rents rising faster than house rents especially in Sydney and Melbourne where rental conditions across the unit sector were previously much softer,” Mr Lawless says.


Multi-speed rental conditions Melbourne apartments

Demand pivots from houses to apartments


“The shift in rental demand towards units reflects both rental affordability pressures, which are deflecting more demand towards the ‘cheaper’ unit sector, and the return of overseas migrants and visitors. Rental demand from overseas arrivals tends to skew towards inner city and higher density precincts.”


In Sydney, unit rents were up 3.0% over the three months ending April, a full percentage point higher than the rise in house rents (2.0%). In Melbourne, the difference is starker, with unit rents 3.6% higher over the past three months compared with a 1.2% rise in house rents.


The rolling quarterly change in rents is now outpacing the rolling quarterly change in housing values across most of the capital cities, which is supporting a rise in gross rental yields. Nationally, housing values were up 1.9% over the most recent three-month period, while rents increased 2.7%. The result is a subtle 2 basis point increase in the gross yield.


However, in Melbourne, the gross yield has lifted by 7 basis points from a recent low and Sydney gross yields are up 9 basis points from the recent low. Despite the upwards trend, gross yields in both these cities remain well below historic averages at just 2.5% and 2.8% respectively.


Higher yields and long-term prospects for capital growth could see investors comprising a larger portion of housing market activity. Financial aggregates published by the RBA to the end of March showed the monthly gain in investor credit growth was at the highest level since August 2015, with the speed of investment credit growth surpassing owner occupier credit for the first time since December 2016.


Will there be a downturn?


With the cash rate set to move through a rapid tightening cycle, the trend towards a softening in the growth rate will become more pronounced over the coming months, before the national index starts to trend lower. CoreLogic research shows a strong inverse relationship between movements in the cash rate and the rate of change in housing values.


Although the housing market is expected to move into a downturn through the second half of the year, it is important to remember the context of the recent growth phase. Since the onset of the pandemic, national housing values have increased by 26.2%, adding approximately $155,380 to the median value of an Australian dwelling.


Multi-speed rental conditions gross rental yields nationally



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