Eliza Owen, Head of Research Australia provides analysis into the state of the rental market over the latest quarter amid COVID-19. The decline in rent values over the quarter came at a time when the rental market was already relatively weak. Annualised growth in national rent values was just 1.1% in the five years to June 2020, compared with annualised growth in the selected living cost index of 1.4% in the 5 years to March for employee households. In other words, rents have generally seen softer growth than the growth in general cost of living for most households.
“Prior to the fall in rent values over the June quarter, growth in rents had seen some momentum building, with the national CoreLogic rental index recording consecutive increases between September 2019 and March 2020. These signs of rebounding rent values came as investor participation in the market was falling from 2017, and subsequently, the rate of new supply additions in rental properties had been falling.
“ABS finance data indicates that the change in monthly lending values to investors averaged -1.3% between September 2017 and December 2018 (when a temporary limit on interest only lending was introduced) off the back of tighter lending conditions. Against steady migration, this contributed to a very gradual tightening of rental markets.
“However, the COVID-19 environment shifted this trajectory. Closed international boarders created a significant shock to rental demand, as historically the majority of new migrants to Australia have been renters. Furthermore, job losses in sectors such as hospitality, tourism and the arts, which ABS payroll data estimates has been around 20%, have also impacted demand, because households in these sectors are more likely to rent than in other industries.” said Owen.
Key Findings- June Quarter Rental Review
- Nationally, rent values declined 0.3% in the month of June, and 0.5% over the quarter. This was the largest quarterly fall in rents since September 2018, and further falls are expected in the coming months.
- Capital city rents have been more immediately impacted by the negative economic shock resulting from COVID-19. Capital city rents fell 0.7% in the June quarter, compared with a 0.2% rise in rents across regional Australia.
- COVID-19 has pivoted the trajectory of rental market performance, with six of the capital city dwelling markets seeing a quarterly decline in rental values. The Hobart rent market had the largest value falls in the June quarter at 2.3%, followed by Sydney at 1.3%.
- Four of the eight capital cities saw no growth or falls in rent values over the year to June. Perth and Adelaide still saw growth in rent values over the year, at 2.2%.
- The narrow differential between Sydney and Canberra rents continue, despite the COVID-19 downturn. Estimated median asking rents in Sydney fell 1.6% in the June quarter, against a 1.7% decline in Canberra rents. Sydney remained the more expensive in terms of median asking rents, at $568 per week. This was just $2 higher than the estimated median asking rent in Canberra.
- Gross rental yields were 3.73% nationally in the June quarter, down 3 basis points over the Mach quarter and 41 basis points over the year.
- In the 12 months to June, rental yields fell across seven of the eight capital city markets. Perth was the only exception, where yields increased a modest 3 basis points over the year.
- In the June quarter of 2020, regional rental yields slipped 3 basis points to 4.93%. The combined capital cities regions fell 2 basis points in the quarter to 3.44%.