November’s dwelling price results from CoreLogic revealed booming rises in dwelling values, driven by Sydney and Melbourne:
However, while dwelling values are inflating at an annual pace of nearly 20% across the major capitals, rents continue to languish, with Sydney’s continuing to fall:
Rental markets are continuing to show a sluggish performance, with rents unchanged over the month across the combined capitals and rising 0.2% over the month across the combined regional areas of Australia.
Rents continued to trend lower in Sydney (-0.1% in November) and were also down slightly in Hobart (-0.6%) and Darwin (-0.5%). The remaining capital cities are generally seeing weak rental market conditions. On an annual basis, the largest rental increases are in Hobart (+5.8%) and Perth (+2.3%), with rents down 1.5% in Sydney and 2.5% lower in Darwin over the year.
Tim Lawless said, “Softer rental conditions can be attributed to a range of factors including the recent history of rising rental supply, demonstrated by unprecedented levels of investment participation in the housing market between 2012 and 2017, as well as a significant increase in dwelling construction skewed towards rental accommodation in the high rise apartment sector. Additionally, a larger than normal number of renters have transitioned to first home buyers, thereby denting rental demand.”
As dwelling values trend higher and rental growth remains low, gross rental yields are starting to compress. Across the combined capitals, gross rental yields moved through a recent peak in May earlier this year at 3.88%. Since that time, gross rental yields across the combined capitals have reduced back to 3.56% which is the lowest gross yield since July last year.
As shown above, Sydney’s rental yields have plummeted to only 3.1%, with Melbourne’s not much better. Both point to severe overvaluation.
Leith van Onselen is Chief Economist at the MB Fund and MB Super. Leith has previously worked at the Australian Treasury, Victorian Treasury and Goldman Sachs.
