- On the supply side, delays in building new houses has impacted the rental market
- Sydney ahs recorded its steepest rental increase since 2009
- Adelaide has the tightest rental market of the capital cities
Data from property marketplace Domain (ASX: DHG ) has revealed that house and unit rents across the combined capitals have reached a record new high, placing increased pressure on tenants.
Given ongoing housing shortages, this doesn’t sound surprising. However, the data has revealed that unit rents are outpacing house rents, due to affordability constraints, overseas migration and foreign students. All of these factors have created an increasingly competitive rental market.
Combined capital quarterly change in weekly asking rents
Nicola Powell, Domain’s Chief of Research and Economics, said the misalignment between supply and demand has resulted in higher rents.
“Demand pressures have been caused by a combination of factors, including the lack of affordable home ownership, changing household formation and the return of skilled migrants and international students.
“On the supply side, we have seen delays in building completions due to supply chain issues, weaker investment activity and the conversion to short-term rentals as tourists return.”
Rent prices, quarterly and yearly change for houses
“The consecutive run of interest rate hikes may have also pushed some landlords to pass on additional home loan costs, while successive falls in the vacancy rate and record-low rental listings is worsening pressure on tenants.”
“While it is still a very competitive market, on a positive note, we have seen suburbs report improved rent affordability, such as Macleod in Melbourne, Bellevue Hill and Collaroy in Sydney.
Rent prices, quarterly and yearly change for units
“Gross rental yields for houses and units are also improving and are at their highest point on record, so it’s a good time for investors to enter the Australian rental market, which will help alleviate some supply pressure.”
Sydney
In Sydney, house rents jumped 4.8% over the quarter to a new record high of $650 per week, the steepest annual increase since 2009, at 14%.
Unit rents are back at $550, a record high that was last seen in 2018, following a 4.8% surge this quarter.
“While it has been the norm for house rents to be smashing new highs since the beginning of 2021, it is a stark change for unit rents, indicating that the affordability issues of renting a house have made budget-conscious tenants shift to units,” the report said.
“Sydney is now tied with Canberra as the most expensive city to rent a unit, and remains the second most expensive city to rent a house.”
Melbourne
In Melbourne, the rental market turnaround has also recovered from a supply surplus induced by the pandemic, with asking rents lower.
Houses rents increased 2.2% over the quarter to a new high of $470.
“Despite this, Melbourne reigns as the most affordable capital city to rent a house with the value gap widening from the other capital cities,” the report said.
“Meanwhile, unit rents jumped 3.7% over the quarter to $425 a week, the sharpest annual increase since 2008, at 14.9%. Overall, Melbourne remains a landlords’ market with available properties to rent dropping by 61% annually.”
House rents surged to a new high of $550 a week in Brisbane, the longest continuous unit rental price growth stretch on record. Adelaide has the tightest rental market of the capital cities, while house rents in Perth are at a record high – 11.1% higher than last year.
In the smaller capitals, Canberra recorded a decline in house rents for two years during the September quarter. In Hobart, rental growth ahs stalled albeit still high. Rental growth in Darwin slows, although it is the highest-yielding capital city for houses and units.
No quick solution
“Unfortunately there is no quick fix to alleviating conditions but there are solutions, if investor activity is encouraged, advance the build-to-rent sector and help tenants transition to home owners,” said Dr Powell.
“If we encourage investors away from the short term rental market and promote participation in social and affordable government housing programs through financial incentives, we will see some pressure ease in the rental market.
“We also need to see greater participation from the government through an increase in rent assistance for low income households, as this hasn’t risen in line with rents, and a stronger commitment to building more social housing.
“Although the government has committed to building more housing, we need to see further progress and a change in land use and planning rules to allow for more homes to be built in middle ring suburbs. If some of these issues are addressed, this will no doubt have a positive impact on easing rental conditions.”
John Foong, Chief Revenue Officer at Domain added: “Results from Domain’s Rent Report September Quarter 2022 indicates there is a clear opportunity in the investor market of Australia, and a need to encourage investor activity.
“With the return of overseas migration and foreign students, increased pressure on the market reduces supply, and will continue, until we move to a solution.
“Responding to the misalignment between supply and demand not only opens up the market for investors, but responds to a clear need in the housing market right now.
“With cities like Brisbane at record low vacancy rates, or Perth where data suggests investors will find gross rental yields for houses and units are at their highest point on record – the opportunity is rife for investors to enter the Australian rental market and achieve real success,” he concluded.
