Rental trends are becoming increasingly diverse across Australia
At a macro level, rents are still rising at well above average rates. While annual rental growth has eased from a recent peak of 9.4% in November last year to 8.7% over the 12 months ending March 2022, the quarterly pace of growth has rebounded through the first quarter of the year, from 1.9% in Dec 2021 to 2.6% in March 2022.
The rebound is partly seasonal as rental trends tend to be stronger through the first quarter of the year, but there are other factors at play including stronger conditions across the medium to high density rental sector.
The rate of growth in unit rents has strengthened to reach a cyclical high of 3.0% in the March quarter, rising at a materially faster pace than house rents (2.4%). The stronger rental conditions across the unit sector demonstrates a remarkable turnaround in rental conditions across higher density markets, where rents fell sharply through the first nine months of the pandemic.
“Through the pandemic to-date, capital city house rents have risen by 13.8% compared with a 3.4% rise in unit values,” Mr Lawless said.
“The net result is that renting a unit is substantially more affordable than renting a house. This affordability advantage, along with a gradual return of overseas migration, employees progressively returning to offices and inner-city precincts regaining some vibrancy, are likely key factors pushing unit rents higher,” Mr Lawless said.
Sydney is now recording the strongest lift in unit rents, up 8.3% over the 12 months to March following a 7.2% peak to trough fall in the first half of the pandemic. Similarly, Melbourne unit rents are up 6.9% over the past year after posting an 8.5% peak to trough fall.
With national rents up 2.6% over the March quarter and housing values rising by a lower 2.4%, gross yields have posted a rare rise in March, up two basis points from a record low of 3.21% in January and February to 3.23%. If rents continue to outpace housing values, which is likely if the housing market moves into a downturn, yields will continue to recover.
Pace of home values growth continues to ease
CoreLogic’s national Home Value Index was up 0.7% in March, driven by stronger conditions in Brisbane, Adelaide, Perth and the ACT. However, there has been a slip in values across Sydney and Melbourne.
The first quarter of the year has seen Australian dwelling values rise by 2.4%, adding approximately $17,000 to the value of an Australian dwelling. A year ago, values were rising at more than double the current pace, up 5.8% over the three months to March 2021 before the quarterly rate of growth peaked at 7.0% over the three months ending May 2021.
Sydney’s growth rate is showing the most significant slowdown, falling from a peak of 9.3% in the three months to May 2021, to 0.3% in the first quarter of 2022. Melbourne’s housing market has seen the quarterly rate of growth slow from 5.8% in April last year to just 0.1% over the past three months.
CoreLogic’s research director, Tim Lawless, says while the monthly rate of growth was up among some cities and regions, there is mounting evidence that housing growth rates are losing momentum.