Rents boom as listings dry up

Domain has released is Q4 Rental Report, which shows that house rents nationally surged by 7.4% across the capital cities in 2021, with all cities other than Melbourne recording strong growth:

Capital City Dec-21 Sep-21 Dec-20 QoQ YoY
Sydney $600 $580 $550
Melbourne $445 $430 $440
Brisbane $480 $460 $425
Adelaide $450 $440 $410
Perth $460 $450 $415
Hobart $500 $495 $460
Canberra $675 $645 $600
Darwin $600 $620 $550
Combined Capitals $499 $483 $465
Source: Domain

Separate data from PropTrack shows that rental growth has been even stronger across the regions, where rents rose by 10.5% in 2021:

Regional rents in 2021 grew strongly across all markets other than the Northern Territory:

Meanwhile, rental yields fell sharply in 2021:

As of December 2021, gross rental yields for residential property nationally were recorded at 4%, which was down from 4.3% a year earlier.

Rental yields across the combined capital cities were much lower (3.8%) than those across the combined regional areas (5%), with both having recorded a fall in yields of 0.2 percentage points over the past year.

Gross rental yields nationally for houses (3.8%) are much lower than they are for units (4.1%), with both having seen falls in yields – 4.1% and 4.4% respectively – a year ago.

As is the case with rents, rental yields are seeing significant divergences among the different capital cities and rest-of-state areas.

Sydney and Melbourne are the only areas where gross rental yields are currently below 4%, while regional South Australia, regional Western Australia, Darwin and regional NT have rental yields in excess of 6%.

New and total rental listings fell sharply in 2021, which helped fuel the rental inflation:

New rental listings in December 2021 were 13.2% lower year-on-year, with falls of 14% in capital city markets and 10.3% in regional areas.

Across the individual capital city and rest-of-state areas, new rental listings have recorded the largest year-on-year falls in regional WA (-26.9%), Melbourne (-19.3%) and regional SA (-18.9%), while the only regions to record increases were Darwin (12.1%), regional NT (13.4%) and Canberra (5.8%).

Total rental listings in December 2021 were the lowest they’ve been since April 2004. Regional rental listings fell by 13.6% year-on-year in December 2021, while combined capital city rental listings were 20.5% lower.

All capital cities and rest-of-state regions have recorded a year-on-year fall in total rental listings, except Darwin (18.8%) and Canberra (2.1%). The total number of rental listings has recorded the largest year-on-year falls in regional WA (-30.3%), Melbourne (-25.8%) and Hobart (-23.5%).

Finally, the dearth of supply and increased competition from tenants has seen properties leasing quickly:

Nationally, the median days on site for a rental property was recorded at a historic low of 21 days in December 2021.

At the same time a year ago, the days on site metric was only slightly higher at 23 days. What is quite astonishing about this result is the two cities with the most rental properties, Sydney and Melbourne, are seeing rental days on site that are much higher than their historic lows.

Throughout the capital city and rest-of-state areas, rental days on site are at historic lows in Brisbane, Adelaide, Perth, Hobart, Canberra, regional NSW, regional Queensland, regional WA and regional Tasmania.

Sydney and Melbourne are the only two regions in which the days on site metric is 25 days or higher, while all other markets except for Darwin have a rental days on site that is less than 20 days.

I tip that rental growth will remain strong in 2022, driven by the return of international students and mass immigration. The impact will be felt most in inner city apartment markets (especially Melbourne and Sydney), which are typically rented by international students.

Unconventional Economist
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