From CoreLogic’s Quarterly Housing & Economic Review, released yesterday:
CoreLogic previously had concerns that heightened levels of new housing construction and investor participation would cause rents to fall and a year ago rental growth was slowing across most regions of the country. Over the past year though, there has been an acceleration in rental growth with the rents increasing by 2.9% compared to an increase of 0.9% at the same time last year. A similar trend has been evident across all capital cities. Exactly what has driven this acceleration is unclear however, it is probably due to a number of factors including: rapid population growth and the sheer lack of affordability of owning a home. Furthermore, the rising popularity of AirBNB is potentially resulting in some level of stock removal from the long-term rental market and increasing supply in the short-term market. Additionally, as mortgage rates edge higher, particularly for investment mortgages, it is likely that landlords will be doing their best to recoup their higher cost of debt by pushing rents higher.
This follows CoreLogic’s September dwelling values results, which noted that rental growth nationally had surged on the back of Sydney and Melbourne:
A year ago capital city rents were rising at the annual rate of just 0.8%. The past twelve months has seen this annual pace of rental growth ramp up to be 2.8% over the twelve months ending September. Sydney rental growth has increased from 2.2% a year ago to be up 4.8% and Melbourne rental growth is now tracking at 4.8%, up from 2.4% a year ago…
The improved growth in weekly rents against a backdrop of slowing capital gains has seen gross yields level out in Sydney at 3.1%, however Melbourne yields reduced further over the month to reach a new record low of 2.91%. Darwin is once again recording the highest rental yields due to the fact that dwelling values are falling at a faster pace than rents, while Hobart isn’t far behind with gross yields reducing but remaining around the 5.0% mark…
Recently released demographic statistics from the ABS highlight a surge in overseas migration rates. The fastest rate of population growth is in Victoria at 2.4%, which is likely one of the key factors contributing to the resilience of Melbourne’s housing market to a broader slowdown in value growth. Net overseas migration surged higher across most of the states over the March quarter, reaching new record highs across both Victoria and New South Wales…
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The main culprit behind the surge in Sydney’s and Melbourne’s rents is obvious:
Rampant immigration-fueled population growth has inflated both prices and rents in Sydney and Melbourne, helping to shut an entire generation out of the housing market.
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.
