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Rental Review Snapshot - 7 July 2016

Posted on 14 July 2016

Source:  CoreLogic

Weekly rents have fallen by -0.6% over the past year

Combined capital city rental rates have fallen by -0.6% over the past year which representstheir greatest annual decline on record (based on data back to 1996).  At the same time a year ago,capital city rental rates had increased by 1.1%.  The factors forcing rental rates lower include: thesoftest wages growth on record, relatively high levels of housing investment following record highsrecently,  historically high levels of new construction (most of which are units which are more thantwice as likely to be rented) and the slowing of population growth which creates less overall demandfor housing.  The combination of all these factors means that landlords have little scope to increaserents.  There are reports that some landlords are having to reduce rents in certain areas in order tomaintain their renters.

The changing rental market will also potentially have repercussions for older stock, particularly units. With so much new unit supply being built, much of which is inner city locations, there is the potential for a flight of tenant demand towards higher quality tenancy options.  It may be harder for owners of older units with less amenities to compete with better located and facilitated new unit stock, particularly if there is little pricing differential.

Over the past 12 months, rental rates have increased in Sydney (+0.4%), Melbourne (+1.7%), Hobart (+4.6%) and Canberra (+1.9%).  Rental rates have fallen over the past year in Brisbane (-0.3%), Adelaide (-0.4%), Perth (-8.6%) and Darwin (-16.2%). Hobart and Canberra are the only capital cities to have recorded stronger rental growth over the past year compared to the previous year. 

Rental Index Results as at 31 June 2016

CHANGE IN RENTS
Region Current Quarter YoY
Sydney $596 -0.8% 0.4%
Melbourne $457 0.6% 1.7%
Brisbane $432 0.2% -0.3%
Adelaide $366 0.5% -0.4%
Perth $431 -2.3% -8.6%
Hobart $356 4.1% 4.6%
Darwin $464 -9.2% -16.2%
Canberra $505 1.3% 1.9%
Combined Capitals $484 -0.3% -0.6%


The +0.4% increase in Sydney rents represents the weakest growth on record for the city.  Combined capital city house rents were recorded at $487 per week in June 2016 and unit rents were $469 per week.  Over the past three months house rents fell -0.4% compared to a 0.1% rise in unit rents. Over the first six months of 2016, house rental rates have increased by just 0.1% compared to a 1.0% increase in unit rents.  Over the same period last year, house rents rose 1.0% and unit rents were 1.3% higher.  Throughout the past year, house rents are -0.9% lower while unit rents have increased by 1.5%.  The current annual decline in house rents is the largest on record, with the CoreLogic rental series extending back to 1996, while annual unit rental growth is occurring at close to its slowest pace on record .

With housing supply, and subsequently rental supply, continuing to rise as growth in wages and the population continues to slow, it is unlikely we will see a turnaround in rental markets in the short-term.  As a result, renters will continue to have more choice and may actually be able to
move into superior rental accommodation for similar or even lower costs.  Over recent years landlords haven't had much incentive to push yields higher due to the low cost of debt and strong capital gains. However, with capital gains starting to slow, investors may place a renewed focus on rental returns which will be difficult in the face of falling rents and increasing rental supply.  Lower rents may also act as a disincentive for first home buyers to enter into home ownership as they may be able to save more for a future deposit.

The fall from peak for weekly rents has been recorded at: -0.9% in Sydney, -0.1%in Melbourne, -0.8% in Brisbane, -1.2% in Adelaide, -14.8% in Perth, -23.3% in Darwin and -6.2% in Canberra.  It is anticipated that over the coming months most cities will continue to see rental rates
shift further away from their previous peaks.
 

KEY RENTAL STATISTICS ACROSS THE CAPITAL CITIES
HOUSES SYD MELB BRIS ADE PER HOB DAR CAN COMBINED CAPITALS
% Change Quarter -1.0% 0.6% 0.2% 0.6% -2.4% 3.2% -5.5% 1.4% -0.4%
% Change YoY -0.3% 1.7% -0.2% -0.4% -8.7% 3.6% -12.9% 1.9% -0.9%
Median Rent ($) $611 $466 $435 $372 $435 $358 $505 $516 $487
UNITS                  
% Change Quarter 0.0% 0.6% -0.3% -0.7% -0.5% 12.7% -24.6% 0.5% 0.1%
% Change YoY 2.8% 1.4% -0.8% -0.8% -7.6% 14.5% -30.0% 2.2% 1.5%
Median Rent ($) $550 $410 $408 $315 $393 $342 $325 $411 $469

 

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