- Australian housing rents were unchanged in the June quarter, the weakest result since 1994.
- The national slowdown largely reflects slower growth in Sydney and Melbourne, Australia’s largest cities.
- ANZ says this is helping to improve housing affordability for the one-third of Australians who currently rent their home.
Australia was building more homes than ever before in the first three months of the year, according to data released by the Australian Bureau of Statistics (ABS).
Not only is this unprecedented building boom helping to place downward pressure on home prices, especially in Australia’s largest and most expensive markets, but also housing rents.
They were unchanged in the June quarter, the weakest result in close to 25 years.
“Australia’s Q2 CPI data showed that nationwide, rental costs were flat in the quarter, which is the weakest quarterly result since March 1994. And in annual terms, rents are only 0.6% higher than a year ago,” said Daniel Gradwell, Senior Economist at ANZ Bank.
Mirroring similar trends in home prices, the nationwide deceleration over the past year largely reflected softer outcomes in Sydney and Melbourne.
“Rents are still rising in Sydney and Melbourne, but the rate is decelerating and the increase in Q2 was the slowest in over a decade,” Gradwell said, pointing to the chart below.
Gradwell says the Sydney and Melbourne-led slowdown is not only helping to gradually improve housing affordability for buyers but renters as well.
“Housing affordability is about more than just housing prices — rental affordability is an important part of the equation given that approximately one third of households are renters,” he says.
“Nationwide, just under 20% of an average household income is now spent on rent, which is the lowest share since 2012.”
Gradwell says the improvement in rental affordability has likely contributed to higher consumer confidence in recent months despite recent declines in home prices.
“Given that a large number of people rent, it is likely that a more affordable rental market is providing at least some support to household sentiment,” he says.
“Further, for many potential first home buyers the current correction in housing prices is viewed as a positive.”
Looking ahead, Gradwell says housing affordability in Sydney, in particular, is likely to improve further in the coming years.
“There are currently nearly 90,000 dwellings under construction in New South Wales, and 66,000 apartments. This backlog is nearly triple the size of the average backlog over the decade to 2012,” he says.
“At the current rate of construction, that will take nearly two years to complete.
“Given the investor-led nature of the latest housing construction boom, it seems likely that the large additions to supply will keep putting upward pressure on vacancy rates and downward pressure on rents in the Sydney market.”
However, while good news for those looking to live in Australia’s largest city, Gradwell says the news is not so good for those in Hobart, currently Australia’s hottest capital city housing market.
“Hobart’s very strong housing sector is also reflected in the rental market,” he says.
“Rents rose another 0.8% in the June quarter, and are now up 8% over the past two years.
“This is in line with the vacancy rate which has collapsed to around 1%, the equal lowest for any state or territory on record.”
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