RP Data has today released a short note (below) on the state of the nation’s rental markets, which it notes are posting solid (but unspectacular) gains, with both rents and rental yields rising:
Across Australia’s capital cities over the past 12 months to April 2013, rental rates have increased by 3.5 per cent for houses and 3.3 per cent for units. While according to Mr Kusher this is a relatively measured rate of growth, it remains higher than inflation. Across the combined capital cities, median weekly rents are recorded at $474/week for houses and $440/week for units.
Although rental growth is moderate and yields are virtually unchanged over the year, Mr Kusher said “the fact that returns on investment properties are significantly higher than the return on cash is one of the key reasons why investorsare again looking towards the housing market for investment return”…
Perth and Darwin continue to be the standout performers for rental growth performance where rates have surged ahead over the year. Simultaneously, the not-so-good performers have been Canberra and Hobart where in these markets, rental growth has dropped. As at April 2013, house rents were most expensive in Darwin ($614/week) followed by: Sydney ($572/week), Canberra ($539/week) and Perth ($508/week). For units, rents are currently highest in Sydney at $498/week followed by: Darwin ($486/week), Canberra ($448/week) and Perth ($446/week).
A retrospective look at rental rates reveals that over the 15 years to April 2013, capital city rental rates increased at an average annual rate of 4.2 per cent for houses and 3.7 per cent for units. According to Mr Kusher, these figures suggest that rental growth over the past year has been below the longer-term average. Perth, Canberra, Sydney and Brisbane are the cities which have each recorded the strongest growth in annual rents over the past 15 years, while across the remaining capital cities; the annual rate of rental growth has been significantly lower…
“Today’s data revealed that yields experienced a significant compression between 1997 and 2004. Since that time, there has been little overall change in gross rental yields. However, over the past few years we have some slight increases in yields for houses and units. This has occurred due to ongoing increases in rental rates at a time when home values had been declining across all capital cities,” Mr Kusher said…
“The data also shows that gross rental yields are trending higher at a sluggish pace. Given the current economic environment and cost of housing, it seems unlikely that gross rental yields will return to their previous levels however, rental growth has historically been fairly moderate and if it reverts to this level throughout this period of low value growth we may see further improvement in gross rentalyields over the next year,” Mr Kusher said.
Leith van Onselen is Chief Economist at the MB Fund and MB Super. He is also a co-founder of MacroBusiness.
Leith has previously worked at the Australian Treasury, Victorian Treasury and Goldman Sachs.
