Australian rental growth craters to an all time record low

Photo by Mike Hewitt/Getty Images

Weekly rents across Australia’s capital cities rose by just 0.3% over the 12 months to the end of November.

It is the lowest growth rate on record.

According to the latest CoreLogic RP Data monthly rental review released today, combined rental rates across Australia’s capital cities rose to an average rate $483 per week, an increase of 0.2% from the beginning of the year and just 0.3% above the levels of a year earlier.

As the table below shows, the only cities to record an increase of at least 2% were Sydney and Melbourne. Rates fell over the year in Brisbane, Perth and Darwin, while the remaining capitals have seen rents rise by less than 1.5% over the year, according to the report.

Breaking the report down further, rents for houses rose by just 0.1% from a year earlier, outpaced by a still benign 1.7% lift rents for units.

As a result of house price growth outpacing increases in rents, gross rental yields for houses and units, at 3.4% and 4.3%, both hit record lows on a combined capitals basis.

According to CoreLogic RP Data research analyst Cameron Kusher, rental growth rates – already at record lows – could fall further in the months ahead.

“It is anticipated that the rate of rental growth will continue to slow over the coming months due to increased supply of housing and rental stock coupled with slower migration rates which has reduced rental demand,” said Kusher.

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

Kusher suggests rental growth in Sydney and Melbourne, Australia’s largest and most expensive housing markets, are likely to remain under pressure given increased housing supply and influx of rental properties hitting the market.

“Sydney and Melbourne, which have seen the largest ramp up in new housing supply and investor activity over recent year, continued to record rental rises over the past year however, each city is seeing a slowing in the pace of rental growth relative to 12 months ago. 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.”

Kusher suggests that with rental growth likely to remain under pressure, it points to the likelihood that capital growth, rather than yields, are going to become an increasingly important factor from an investment return perspective.

Given the breakneck rally seen in housing prices over the past five years, particularly in Sydney and Melbourne, along with recent signs that house prices are starting to soften, that’s anything but guaranteed.

With rental yields and record lows and housing prices near record highs, it’s little wonder than sentiment towards the housing market appears to be turning.

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