Real Estate

Australia’s rents continue to climb, despite affordability constraints

Capital cities, regional areas, houses and units all saw an increase in rents last quarter, culminating in the highest calendar year growth rate since 2007.

CoreLogic’s quarterly Rental Review shows the national rental index increased 1.9% during the December quarter, a repeat of the September quarter.

Despite quarterly growth rates easing since peaking in March at 3.2%, the national index recorded its highest annual growth rate since January 2007 in November at 9.44%, before falling slightly in the 12 months to December at 9.40%.

CoreLogic’s Research Director Tim Lawless said rents were under extraordinary pressure from many factors, not least the demand for detached housing and an ongoing lack of rental supply.

“For more than 18 months we’ve seen demand for detached housing continue unabated as more renters work from home, either on a permanent or now hybrid working arrangement, which drives demand for more spacious living conditions,” he said.

“In addition to this trend, investors, while still active in the market, have been dwarfed by an over representation of owner occupiers entering the market, upgrading or buying holiday homes that aren’t being added to the rental pool. This is also being played out in the rapid growth in regional rental markets.”

Regional rents continued to outpace capital city rents over the fourth quarter with regional dwellings rising 2.5% against the 1.6% rise in capital city rents, taking the annual regional rental growth rate to 12.1%. Over a 10-year period regional house rents have increased 33.2% compared to 24.9% growth across the combined capitals. The regional unit market has seen rents increase 41.4% in the past decade compared to capital city

Mr Lawless said the stronger rental conditions across the regional markets is a story involving both demand as well as supply, following a surge in regional population growth through the pandemic, especially across regional Victoria and regional NSW.

“While demand has risen we generally haven’t seen much of a supply response. Australia’s rental market is mostly reliant on private sector investors to provide rental housing,” he says.

“Investors as a proportion of total mortgage demand moved through record lows in early 2021, highlighting relatively low levels of investment activity across the country and also implying relatively low levels of new rental stock coming onto the market.

“Arguably the regions have less elasticity in rental markets, meaning, when demand rises, supply is less responsive than capital cities where investors are generally more active.”

Brisbane was the strongest performing rental market amongst the capitals over the quarter, rising 2.3%, followed by Canberra and Hobart, both rising 2.1%. Despite recording the strongest annual rental growth (15.2%), the Darwin rental market was the worst performing over the quarter, with rents rising 0.6% over the three months to December.

Canberra remains the most expensive capital city rental market, with typical dwellings renting for $651 per week, followed by Sydney ($604p/w), Darwin ($561p/w), Hobart ($521p/w) and Brisbane ($507p/w).

Adelaide remains Australia’s most affordable capital with a median dwelling rent of $447 per week, followed by Melbourne at $456 per week.

Houses vs Units

Each capital city market posted a rise in rents over the December quarter for both houses and units. Brisbane recorded the strongest quarterly increase in house rents of 2.7%, taking annual growth rates to 10.6%. Darwin house rents increased 0.6% during the quarter, however its growth in of 2021 resulted in the highest annual house capital at 15.0%.

As arguably the most Covid-impacted unit market in Australia, Melbourne’s rental growth trends shifted in December, as units recorded the strongest rental growth in the country, up 1.6%.

Mr Lawless says Melbourne’s rents remain 5.5% below the record highs of July 2019, however any recent momentum in unit rental growth could represent a recovery trend, underpinned by affordability constraints.

“Brisbane’s rental market for houses has shown strength throughout the pandemic as demand outweighed supply, while Melbourne’s unit market has been weak through most of the pandemic to date due to low demand against relatively high vacancy rates,” Mr Lawless says.

“Melbourne’s unit from higher demand as more domestic renters seek out affordable housing options in the unit sector. Demand for Melbourne unit rentals is likely to increase more sharply as foreign students and international visitors return.”

Rental yields

Gross rental yields continued to slide in December, hitting a new record low as the growth in dwelling values outpaced rental increases. While national dwelling values rose 3.9% in Q4 of 2021, rental values increased 1.9% causing gross rental yields to fall to 3.22%.

Covid restrictions such as international border closures, and disruption to employment across sectors such as tourism and hospitality, which have a relatively high proportion of renters, have played a role in compressed yields. Sydney and Melbourne have the lowest yields of any capital city at 2.42% and 2.74% respectively while Darwin has the highest at 6.05%, followed by Perth (4.37%).

Most expensive and most affordable suburbs

CoreLogic’s quarterly Rental Review includes a list of the country’s top 30 most expensive and affordable rental suburbs for each capital city as well as all key rent and yield statistics.

Vaucluse in Sydney’s eastern suburbs is Australia’s most expensive suburb for house rentals, with a median weekly rental value of $2,308 compared to Elizabeth South in Adelaide, where tenants pay a median rent of $317 per week.

For units, Sydney’s Point Piper, also in the city’s eastern suburbs, has the most expensive rent at $1086 per week compared to Orelia, almost 40km south of Perth, which has the country’s most affordable median unit rents at $258 per week.

For more information or to download a copy of the report, visit www. corelogic.com.au/reports/ quarterly-rental-review.

Property seen as a safe haven

volatility

Property markets are being viewed as a relative safe haven, as uncertainty and volatility markets, according to Pete Wargent, co-founder national marketplace connecting homebuyers to buyer’s agents and lenders, BuyersBuyers. “On the other hand, the residential property less volatile, as household income and job security are key drivers in the relative stability of the property market. While there was a good deal of uncertainty regarding employment in mid-2020 (before vaccines became has returned. In total, 13.25 million Aussies are now gainfully employed, which is the highest ever “Record job vacancies suggest that the only going to increase from here, especially as the international borders reopen. And all of those people will have to live somewhere, and obviously, with strong employment readings, there are very few forced

“The unemployment rate fell to 4.17 per cent in December. Yes, that was pre-Omicron, and the January numbers might not be so good. But overall, with job vacancies at extremely elevated levels, we’re employment and an unemployment rate with a 3-handle sometime Wargent said.

“When you look at the risks for residential property, they tend to come from very high unemployment, very high-interest rates leading to widespread defaults and selling, or a big oversupply of properties.

“At the moment, we have the lowest unemployment rate and interest rates in a generation, while rental vacancies have dropped to the lowest level in a dozen years, and they are still tightening even now.

“While it’s inevitable that interest rates will have to rise, with a cash rate at the zero lower bound for some time yet, it’s no surprise to see the enduring popularity of residential property as an investment in these increasingly volatile

Doron Peleg, cofounder of CEO of BuyersBuyers, said that the consistency of returns from real estate over the decades had been a key drawcard for investors. stock markets are off their highs as markets worry about monetary tightening, especially for the tech-driven by 7.6 per cent last week for its worst week since 2020, taking the market “Australian stock markets have been less volatile, with markets only down a few per cent from six months ago. “But, overall, from the absolute previous peak of 6,828.7 points, set in November 2007, the modest capital growth of about 5 per cent over nearly a decade-and-ahalf. Dividend returns from Australian stocks tend to be considerably higher than the global average, so the total return over that time from Australian stocks have been solid, but “cryptocurrency markets have continued to be extremely volatile, with the price of Bitcoin down almost 50 per cent from

“The housing market, on the other hand, has delivered a substantially higher total return over the past 15 years - comprising rental return plus capital growth - especially for buyers using sensible leverage. “While it’s extremely hard for average investors to pick and choose outperforming shares consistently, it’s considerably easier to choose the ‘right’ investment properties that deliver strong long-term return and also enjoys substantial From a risk perspective, the risk associated with residential property is typically substantially lower.

In particular, Peleg associated with longterm investments in low-risk residential properties: (i) consistent capital growth over the longterm, delivering strong and stable returns; (ii) the ability to use leverage to magnify returns; as depreciation and building allowances, negative gearing, and the capital gains tax discount for assets owned for longer than 12 months ; (iv) the ability to add value to residential property assets through renovation or development; and (v) there is no need to sell to realise some of the capital gains. Instead, out some of the equity and retain the asset for the very long term.

year

he expects 2022 to be a steadier year in residential property after the very tight markets and boomtime conditions of 2021.

“Enquiry levels are still very strong so far in 2022, especially for Brisbane and Adelaide, but overall there should be a less frenzied market this year. reasonably tight across much of the country. We expect to see most residential property markets delivering capital growth in the 3 to 8 per cent range this year, which is more sustainable. However, the key objective is the residential property space is to build wealth, and therefore the average holding period exceeds 10 years.

“This is a long-term game of buy-and-hold, which has proven to be an excellent investment strategy: lower risk, strong and steady returns, and generous