According to CoreLogic, rents increased 0.7% in November, which was well above the decade average monthly movement of 0.2%.
Every capital city and rest-of-state region recorded a rise in dwelling rents over the month, with house rents generally continuing to record a faster rate of growth than units. Melbourne is one of the few exceptions, where unit rents have risen at a faster pace than house rents over four of the past five months.
Melbourne’s unit sector was previously recording the weakest rental conditions of any capital city, with rents plunging -8.5% between March 2020 and May 2021. It seems that more tenants are taking advantage of the renewed affordability of unit rentals, especially across inner city precincts where rents had previously fallen sharply.
Although rents are rising, gross rental yields have continued to reduce as housing values rise at a faster rate than rents. Nationally, gross rental yields fell to a new record low in November, reaching 3.23%.
This record low extended across every capital city and broad rest-of-state region in November, implying a growing imbalance between the costs associated with owning a home versus renting a home.
With mortgage rates also extremely low, such a small yield profile is not overly concerning at the moment, however as investment activity increases along with the growing potential for higher interest rates, we could see more investors once again relying on a negative gearing strategy over the medium to long term.
City homes now 37.9% more expensive than units
CoreLogic’s December Home Value Index reveals that housing values rose another 1.3% in November, taking prices 22.2% higher over the past 12 months. The report also shows that the gap between capital city houses and apartments is now the largest on record!
The November uptick in values has added $126,700 to the median value of an Australian home but the rate of growth is definitely slowing. Virtually every factor that has driven housing values higher has lost some potency in recent months. Fixed mortgage rates are rising, a higher number of listings for sale is taking some of the urgency out of the market for buyers, affordability has become a more substantial barrier to entry and credit is less available.
Houses have continued to outperform units, with capital city values up 1.2% and 0.7% respectively over the month. However, the quarterly rate of growth is now the narrowest it has been since October last year, with 1.6 percentage points between the two broad housing types.
Based on median values, capital city houses are now 37.9% more expensive than capital city units – the largest difference on record. In dollar value terms, a capital city house is averaging approximately $240,500 more than a capital city unit. In Sydney, where the gap between house and unit values is the widest, a house costs $523,000 more on average than a unit.