Rental markets remain extremely tight around the country, with rents now consistently rising at a faster rate than housing values, according to CoreLogic.
Nationally, rents increased 0.9% in June, taking the annual growth rate to 9.5%. This is the highest annual growth rate since December 2007 when record levels of overseas migration pushed rental demand higher.
“Such strong rental conditions through the current cycle have occurred largely in the absence of overseas migration, although the reopening of international borders is likely now adding further upwards pressure on rental demand,” Mr Lawless said.
“A reduction in average household size through the pandemic helps to explain such high rental demand during a time of closed international borders. Additionally, overall rental supply has probably been negatively impacted by the long running downturn in investment activity between 2015 and 2021.”
Apartment rents rising faster than those for houses
The trend in unit rents has turned around remarkably over the past year, after falling sharply in some cities early in the pandemic. Sydney and Melbourne unit rents are now rising substantially faster than house rents, with tenants taking advantage of more affordable medium to high density rental options.
At the national level, rents have been rising faster than housing values for five months now, placing renewed upwards pressure on yields. After bottoming out at a record low of 3.21% in the first two months of 2022, the average gross yield has increased to 3.33%.
“With rental markets expected to remain tight, it’s likely rents will continue to outpace growth in housing values, driving a rapid recovery in rental yields. Higher yields may help to offset less demand from investors, although this sector of the market is generally more motivated by prospects of capital gains than rental returns,” Mr Lawless noted.
Australia’s housing downturn increased its momentum in June
The downturn was driven by sharper falls in Sydney and Melbourne as well as weakening conditions elsewhere.
It was the second consecutive month of value declines, down -0.6%, to take overall values -0.2% lower over the June quarter. Continued falls in Sydney dwelling values (-1.6% month and -2.8% quarter) and Melbourne (-1.1% month and -1.8% quarter) were the primary drivers of this month’s steeper drop, but housing values were also down in Hobart (-0.2% month and -0.1% quarter) as well as regional Victoria (-0.1% month and +1.2% quarter).
Every capital city and broad rest of state region is now well past its peak rate of growth as trend rates eased across the remaining markets.
Households more sensitive to rising interest rates
Household debt to income ratios from the RBA indicate debt levels reached new record highs in the March quarter. The ratio of household debt to disposable income was recorded at 187.2, the large majority (77%) of which was held in housing debt.