2021: A year of strong rental rate growth
Rental rates rose across Australia in the December quarter, providing property owners with the highest calendar year growth rate in income since 2007.
CoreLogic’s quarterly Rental Review shows the national index recorded its highest annual growth rate since January 2007 in November at 9.44 per cent.
That said, quarterly growth rates peaked in March at 3.2 per cent and have since eased. The index rose by 1.9 per cent in the December quarter and by the same amount in the September quarter.
CoreLogic’s research director Tim Lawless explains that rents have been 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 says.
“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. They rose 2.5 per cent compared to a 1.6 per cent rise in capital city rents, taking the annual regional rental growth rate to 12.1 per cent.
Over a 10-year period, regional house rents have increased 33.2 per cent compared to 24.9 per cent growth across the combined capitals. The regional unit market has seen rents increase 41.4 per cent in the past decade compared to capital city figures of 14.4 per cent.
Lawless says the stronger rental conditions across regional markets is a story involving both demand and supply issues, 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.”
Among capital cities, Brisbane was the strongest performing rental market over the December quarter, rising 2.3 per cent, followed by Canberra and Hobart, which both rose 2.1 per cent.
Despite recording the strongest annual rental growth (15.2 per cent), the Darwin rental market was the worst performing over the December quarter, when rents edged by only 0.6 per cent.
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.
Despite the rise in rental rates, CoreLogic reports that 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 per cent in the December quarter, rental values increased 1.9 per cent, causing gross rental yields to fall to 3.22 per cent.
CoreLogic says COVID-19 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 per cent and 2.74 per cent respectively, while Darwin has the highest at 6.05 per cent, followed by Perth (4.37 per cent).