CoreLogic has released its May housing chart pack, which reports that the nation’s rental growth has gone vertical, soaring by 4.9% in the year to April 2021:
As shown in the next chart, rental growth is solid to strong almost everywhere outside of Melbourne and Sydney, which have been hit hardest by the collapse in immigration (including international students):
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The next chart plots annual wage growth across both detached houses and apartments. As expected, detached houses have experienced far stronger rental growth than units. The difference is especially apparent across Melbourne and Sydney, whose apartment markets have been hardest hit by the collapse in migrant (international student) numbers.
Finally, despite the overall strong rental growth, rental yields have collapsed to a fresh record low of only 3.2% across the combined capital cities and 4.7% across the combined regions, with Sydney’s (2.7%) and Melbourne’s (2.9%) gross rental yields below 3%:
The compression of rental yields reflects the explosive price growth experienced across all markets, which has far outpaced the strong rental growth.
Nevertheless, property outside of Sydney and Melbourne remains attractive from a yield perspective given mortgages are on offer at rates of less than 3%:
This suggests that prices will keep rising until mortgage rates and yields move back into historical balance. It also helps to explain why investors are flooding back into the market.