According to CoreLogic, the pace of rental growth has softened over recent months, but the trend in rising rents remains strong. Nationally, rents have lifted by 8.2% over the 12 months ending August, the largest rise in rents since 2008.
There remains a stark difference between the pace of growth in house rents, where nationally the cost of renting has risen by more than double the pace of unit rents; 9.9% nationally for houses compared with 4.0% for units over the 12 months ending August. This difference between rising house rents and unit rents is most pronounced in Sydney and Melbourne, where unit markets have recorded a substantially lower growth rate. However, most of the capital cities are recording the same pattern, but in a less pronounced way.
The weaker trend in unit rents across Australia’s two largest cities is likely a reflection of their greater exposure to temporary overseas migrants as a source of rental tenancy, especially foreign students who would normally underpin inner city high rise rental demand. The sharp drop in demand due to closed borders has been exacerbated by high supply levels as both cities come out of an unprecedented surge in inner city apartment construction.
Sydney & Melbourne rents begin rising
Although Melbourne and, to a lesser extent, Sydney unit rents remain soft, unit rents are starting to rise in these cities. Sydney unit rents have consistently risen each month during 2021, while in Melbourne, unit rents have been rising since June.
The strongest rental markets remain in Perth and Darwin, however the annual rate of rental growth in these cities appears to have peaked, while rental growth across the remaining capitals is continuing to trend higher.
With national housing values rising by 18.4% and rents rising by a lower 8.2%, the result is ongoing yield compression.
Nationally, gross rental yields have fallen to an all-time low of 3.32%. It is no longer just Sydney and Melbourne where rental yields are plumbing historic lows. Brisbane (3.99%), Hobart (4.01%) and Canberra (3.99%) have also seen gross rental yields fall to new record lows in August.
What is the impact of lockdowns?
Australian housing values have continued to record a broad-based rise despite the disruption from lockdowns. Dwelling values rose 1.5% in August; a rate of growth that is still well above average, but the lowest monthly rise since January.
Both advertised supply and housing demand have been negatively affected over recent months.
In early May, newly advertised properties were tracking 19.7% above the five-year average, however due to both lockdowns and seasonal factors, the number of new listings through August dropped to -5.8% below the five-year average and total active listings were -29.4% below average.
The estimated number of home sales has also been affected, dropping by -9.0% nationally over the three months ending August when compared to the previous three-month period. Despite the fall in sales, however, housing market activity remains well above average levels.