RENTS for houses across the capital cities have hit record highs following a 5.5% jump over the past year, while unit rents have increased for the first time during the pandemic as Australians showed signs of a willing return to apartment living.
Domain Group’s September quarter Rent Report shows that both house and unit rents lifted by 2.5% across the capital cities in the three-month period.
House asking rent prices hit new record highs in Sydney ($580 per week), Brisbane ($480), Adelaide ($440) and Canberra ($645), and maintained a record high in Hobart ($495). Unit asking rent prices hit new record highs in Brisbane ($410) and Canberra ($520) and maintained their benchmark in Adelaide ($350). Unit rents in Sydney ($485) and Melbourne ($370) rose for the first time in over a year.
“We’re seeing renters in cities such as Sydney, Melbourne, Canberra and Brisbane start to consider apartment living as an option shown by the unit rent increase, largely being driven by affordability, whether that’s people seeking a better deal or cities that have record-high house rents become a strain on budgets,” Dr Nicola Powell, Domain’s chief of economics and research said.
“However, space is an important factor for tenants who may have a family or need to share a house. In some cities, it’s clear that tenants are willing to pay a premium for space necessary for their lifestyle, as house rents achieve highs and rise at a faster pace for rentals with more bedrooms.”
Meanwhile, Melbourne’s house rents ($430) are the lowest of all the capital cities for the first time ever, and it is the only city to have house rents lower than before the pandemic began in March last year.
“Melburnians have grappled with the longest lockdown of any city in the world, and this has contributed to the market’s weak rental growth,” Powell said.
“It is a good sign for tenants who are wanting more space and now is the time to negotiate on asking rents to secure a good deal. However, we have seen that vacancy rates have continued to decline, suggesting that the empty pool of rentals will continue to shrink and rents will not stay this low for much longer.”
Capital cities such as Perth and Hobart that have avoided major outbreaks have seen their rent asking prices hold over the quarter – a positive sign for tenants indicating that after a year of rapid growth, asking rents will start to slow. Darwin’s rental market has made a swift recovery since the beginning of the pandemic and rental yields have improved, suggesting rents are increasing faster than purchasing prices.
Powell said rental growth has been due to a lack of rental supply in certain areas, increased government stimulus packages financially supporting those impacted by lockdown and the desire for more space. Inner-city areas of Sydney and Melbourne that have seen the greatest drop in asking rents have now started to record growth.
According to the Australian Bureau of Statistics, investors have taken 5% share from first home buyers across the country, meaning less first home buyers entering the market as prices increase. This would provide the market with more rental properties, helping ease rental price growth.
However, gross house rental yields hit a record low for combined capital cities of 3.56%, as house values grow at a greater pace than rents. Gross unit rental yields, meanwhile saw a slight turnaround this quarter, increasing 1.1% from last quarter’s record low to 3.95%.
“As Victoria and New South Wales announced their roadmaps to re-open, and international travel soon to be on the horizon for Australians, we can expect that asking rents for units and houses will continue to rise over the next 12 months in most states.
“There’s tailwind behind rising investment activity boosting rental supply, tighter lending could stall this, particularly if we see further moves from the regulators.” The Australian Prudential Regulation Authority this month lifted the minimum interest rate buffer up to 3% in a bid to stabilise risks amid surging house prices and sluggish wages growth.
“Some Aussies who made a tree change will start returning to the city as well as people immigrating from other countries will cause vacancy rates to decrease in inner cities driving up rent prices,” Powell said.