Rental rates across Australia are falling at the fastest pace on record

Photo by Dani Abramowicz/FilmMagic

The cost of renting in Australia continues to fall, logging the largest annual drop on record in June.

According to the latest June Rent Review released by CoreLogic, capital city rental rates fell by 0.4% from a year earlier, with steep declines in mining capitals, along with an increasing amount of rental stock in other capitals, acting in unison to drag the national average lower.

“Large rental falls in Perth and Darwin have pulled the combined capital average lower, with rents in Brisbane and Adelaide also lower over the year,” said Cameron Kusher, research analyst at CoreLogic.

“However, while a majority of capitals saw a drop in rental rates over the month, on an annual basis, half of Australia’s capital cities actually recorded a rise in rents. These included Sydney, Melbourne, Hobart and Canberra.”

The table below, supplied by CoreLogic shows the, monthly quarterly and annual change in rents for each capital city. While the mining capitals recorded some enormous declines, it’s clear than rental increases elsewhere in the country, outside of Hobart, are running at-or-below the annual pace of inflation.

By type of dwelling, rental costs for houses fell by 0.5% over the past year, partially offset by a 1.5% increase in rents for apartments. There are more houses than apartment available to rent in Australia — contrary to popular belief — explaining the overall decline in rents over the past year.

And Kusher believes the weakness in rental rates will likely continue, at least over the near-term.

“It is anticipated that the weakness in the rental market will persist and where on an annual basis, we will see rents fall even further over coming months,” he says.

“The factors forcing rental rates lower include the softest wages growth on record, relatively high levels of housing investment following record highs recently, historically high levels of new construction and the slowing of population growth which creates less overall demand for housing.

“The combination of all these factors means that landlords have little scope to increase rents. There are reports that some landlords are having to reduce rents in certain areas in order to maintain their renters.”

Given the outlook for rents, along with potential for further gains in house prices, Kusher also suggests that gross rental yields — already running at record lows — could fall even further.

“At a combined capital city level, gross rental yields were recorded at 3.2% for houses in June 2016 and at 4.1% for units, each of which are sitting at record low levels,” says Kusher.

“It’s also likely that we’ll see yields compress further over the coming months. However, this will be dependent on growth in home values as well as the direction of rental rates.

“As a result, capital growth, which has slowed from its peak, will continue to be a much more important factor for property investors than rental returns,” he says.

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