Property rents accelerated in March

CoreLogic has released new data on Australia’s rental market, which shows that growth accelerated across almost every market segment in the year to March 2021.

Australian rental growth

Rental growth has accelerated across most markets.

In particular, Darwin and Perth rents are rising at a record-setting pace across both Perth and Darwin, growing by 5.9% and 7.7% respectively over the quarter, according to CoreLogic’s Tim Lawless:

“Rental prices in Perth and Darwin started surging higher in September last year. The monthly growth in rents across Perth quickly accelerated from an already high 1.1% in September 2020, to 2.0% by March 2021. Darwin rents have risen by an average 2.1% per month for the past seven months, including a 2.4% lift in March 2021. Both these markets have seen a recent history of low housing investment which has kept rental supply low at a time of rising demand.”

This reflects catch-up growth, however, with Perth rents remaining remaining 16.0% ($80 per week) below their 2013 peak and Darwin rents remaining 24.6% ($150 per week) below their 2014 peak.

Rental growth has also picked up across the other markets with the only exception being Melbourne and Sydney units, which fell 8.2% and 4.9% respectively in the year to March, and Melbourne houses, where rental growth has remained soft (+0.9%).

The drag from Melbourne’s and Sydney’s rental falls has also pushed overall capital city unit rents down 3.8% in the year to March, versus 5.2% growth across detached houses.

Despite the overall strong rental growth, yields continue to contract on the back of even stronger price growth. in particular, Sydney’s (2.7%) and Melbourne’s (2.9%) rental yields hit record lows in March:

Gross rental yields

Gross rental yields have fallen to all-time lows.

I expect the yield compression to continue based on the fact that most markets across Australia are still providing gross yields that are higher than mortgage rates, which provides the opportunity for positive cash flow investments.

Prices will likely continue to rise until the historical relationship between gross yields and mortgage rates normalises.

Unconventional Economist
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Comments

  1. Yep, my apartment is going up by $30 per week. Now that I’ve gotten the owner through a scrape, they’re rewarding me with a hefty rent increase. I’m returning the favour by vacating.

  2. pfh007.comMEMBER

    Rents increasing?

    That is a surprise considering how many people are trying to tell us there is an oversupply of housing and apartments.

    Gosh!

    How about we address this tedious and endless debate by adopting as a target of public policy a state wide average residential vacancy rate of 4%.

    Nice and simple.

    When it falls below that build build build until the vacancy rate is again at least 4%.

    Cheap credit might still be able to fluff prices but it will have a lot more difficulty driving rents when vacancy rates are at 4%.

  3. Is it really ‘profitable’ if you are only comparing on groas yield basis?
    Surely for an apartment to be profitable you need to look at the net yield. Especially considering the maintenance requirements of this asset class.

  4. I doubt this. Mate if mine just said the rent for her IP was dropped by 20% and only one applicant applied that wasnt actually ideal (so im guessing with pets or kids or smoker).. and took it.
    Her partner still looking for a housemate and to no avail. Sydney. One parramatta way and the other inner west.
    Noome is screaming rent rises here…. house prices are in a debt frenzy, but rents are still tied to the bodies coming in and wage increases. Harder to believe rents are on the rise.
    Is this just factoring in the rents they can start collecting now that they couldn’t before the moratorium ended?