CoreLogic’s Rental Review for the June 2021 quarter shows despite rental growth slowing over the recent months, the latest figures take national rental rates 6.6% higher over the year; the highest annual growth in dwelling rents since January 2009.
CoreLogic’s national rent index recorded a 2.1% rise in the three months to June 2021, down on the 3.2% rise over the March quarter. National gross rental yields were recorded at 3.41% in the June quarter, down from 3.55% over the March quarter and 3.73% a year earlier, as dwelling values outperform rental growth.
Regional rents continued to outpace capital city rents, rising by 2.7% in Q2 compared to a 1.9% rise in capital city rents, both down quarter-on-quarter. Despite the easing in growth in recent months, regional Australia’s annual rental growth hit 11.3% in June 2021. This is the highest annual growth result on record, with the CoreLogic rental index commencing from 2005.
CoreLogic’s Head of Research Australia, Eliza Owen, says Australia has not seen rental value increases this high for over a decade.
“Following subdued rental performance through much of the 2010s, the Australian rental market has seen an increase in values due to many of the same factors that have led to the current housing price upswing. These factors include increased government stimulus through COVID-19, accumulated household savings through lockdown periods, the swift economic recovery seen as restrictions eased, and a lack of rental supply in some markets have also exacerbated rental price increases, particularly in major centres of regional Australia.
“It is interesting to note that, as with house prices, rent prices are seeing a deceleration in growth at the national level and across each of the capital cities. This may reflect affordability constraints, but there could also be higher levels of rental supply as investor activity in the market increases. Over May, ABS data showed a 13.3% increase in new finance lent for the purchase of investment property,” says Ms Owen.
Despite the strong national and combined regional figures, a closer look at rental value change by capital city tells very different stories, with change in rents over the year ranging drastically from 21.8% growth in Darwin, to a -1.4% decline in Melbourne. Canberra remains the most expensive city to rent, with Adelaide the most affordable.
Ms Owen says there are pockets of the rental market which remain subdued, also because of the unique impacts COVID-19 has had on different parts of the country.
“In Sydney and Melbourne, unit rents continue to show year on year decline, at -1.1% and -6.4% respectively. As noted in previous quarters, these cities, which have historically had the highest intake of international migrants, have seen rental demand most impacted by international border closures amid the pandemic. Although demand across these unit markets remains fairly subdued, there are signs that rents may be stabilising at lower levels.
“In fact, Sydney unit rents have begun to creep higher in recent quarters, including a 1.8% uplift in the three months to June. Melbourne unit rents have also started to show signs of stabilising, with values remaining flat over the quarter. Recent lockdown conditions across Sydney may impact rental markets where there are high concentrations of renters in affected industries, such as hospitality and tourism. These regions include the inner city market of Sydney, which has been one of the more subdued Sydney rental markets through the pandemic.
“Hobart rent values also took a hit at the initial onset of COVID-19. Anecdotally, many short term accommodation holders had marketed their property on the long term rental market amid domestic and international travel restrictions. However, as domestic travel flows have somewhat normalised, save for sporadic lockdown conditions, the return of domestic tourism may have seen the reversion of this excess supply to short term accommodation. The Hobart rental market saw a peak to trough decline of -5.0% through 2020, and has now recovered to record highs,” says Ms Owen.
Key highlights – June Quarter
- National rental rates rose by 2.1% over Q2; easing from the 3.2% rise over Q1.
- Capital city house rents were up by 2.2% over Q2 compared to a 1.3% lift in unit rents. Regional house rents rose by a higher 2.7% and units 2.9% over the quarter.
- Canberra remains the most expensive capital city to rent, with a house typically costing $668p/w to rent and $521p/w for a unit.
- Darwin houses and units recorded the strongest growth in rents over the most recent quarter and year, up 5.0% and 3.9% respectively over the quarter and 23.6% and 19.2% over the year.
- Melbourne recorded the weakest growth in rents over Q2. House rents were up 1.1%. Unit rents saw no change over the quarter, but showed a minor rise in the month of June of 0.3%.
- National gross rental yields were recorded at 3.41%, down from 3.55% over the March quarter and 3.73% a year earlier as dwelling values outperform rental growth.
- Gross rental yields were lower across all capital cities over the quarter, the largest decline was across Hobart down 31 basis points to 4.19%.
- Darwin remained the highest yielding capital city with houses producing a yield of 5.58% and units 6.94%. This was higher than one year ago.
“Overall, I think we can expect a similar outcome for the Australian rental market as the purchasing market. Very high rental growth is unsustainable while income growth remains subdued. The result will likely be more subdued growth rates in the coming quarters, especially as investor participation trends higher, delivering more rental supply,” Ms Owen concluded.