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Here's why Aussie renters should ask for a reduction at their next review

Photo by Bradley Kanaris/Getty Images

In what is bad news for investors but good news for those looking to rent, Australian capital city rents increased at the slowest pace on record in 2015.

According to the CoreLogic RP Data, capital city rents rose to $483 per week in December, leaving the annual increase at just 0.3%, down significantly from the 1.8% pace seen in 2014.

The growth rate was the lowest seen going back to December 1996.

By type of premises, rents for houses fell 0.2% to $486 per week in the 12 months to December. Over the same period, rental growth for units rose 0.4% to $464 per week.

The chart below, supplied by CoreLogic RP Data, reveals the scale of the slowdown, or decline, in rental growth for both categories. Note that rental yields, despite the slowdown in rental growth, have started to rise in recent months on the back of modest house price declines.

According to CoreLogic RP Data, the only cities to see an increase in weekly rental rates were Sydney with an increase of 1.9%, Melbourne (2.2%), Hobart (0.6%) and Canberra (1.9%). Rental rates fell in Brisbane (-0.3%), Adelaide (-0.2%), Perth (-8.0%) and Darwin (-13.3%).

According to CoreLogic RP Data research analyst Cameron Kusher, the slowdown in 2015 was due to a number of factors.

“We’ve never seen rental growth as sluggish as it is at the moment,” said Kucher following the release of the latest Rent Review released by the group earlier today.

“The construction boom across the capital cities, coupled with slowing population growth, low mortgage rates and the recent heightened level of activity from investors are the major contributing factors to the slowing rental growth in 2015,” he said.

There are recent signs that investor activity in the residential property market is cooling – lending to housing investors has fallen heavily in recent months on the back of tighter lending restrictions being enforced on lenders from Australia’s banking regulator APRA. But Kusher believes the slowdown in rental growth seen in 2015 may continue, or worsen, as additional housing stock is built.

“Furthermore, we’re expecting to see more of the same over the coming months due to increases in the supply of new housing, rental stock and a further slowdown in migration rates,” said Kusher.

“It is clear that the increase in investment stock continues to provide landlords with little scope to lift rental rates while the low mortgage rate environment provides little incentive to push yields higher.”

“We envisage that growth in rental rates is likely to remain weak or potentially slow even further over the coming months. The good news for those looking to rent is the possibility that rental rates will fall even further over the coming year.”

The factors that Kusher outlines are simple supply versus demand dynamics. The amount of available rental stock has grown sharply at a time of slower population growth and below-trend economic growth.

Even with the recent pullback in housing investor activity, it’s clear that it’s likely to be a renters’ market in Australia for the foreseeable future.

“The large pipeline of residential construction activity and recent high levels of investment demand means that renters are likely to continue to have plenty of choice,” Mr Kusher said.

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