Capital city rents are growing at their slowest rate in more than a decade, with a surge in new property stock and rising home values the most likely contributors to the slowdown, according to new data.
RP Data’s monthly combined capital city rental market analysis showed rents across Australia’s big cities grew by just 1.8 per cent in the past year, compared to a five-year average growth rate of 3.8 per cent.
Research analyst Cameron Kusher said the rate of rental growth is easing on the back of a large rise in capital city home values and a strong rise in the supply of new homes being built.
Mr Kusher said added to this is the impact of record-level investor buying, which ultimately affects overall rental market supply.
“Slow rental growth rates have a knock-on effect for rental yields,” he said.
While slowing rent rises might be a boon for tenants, property investors are seeing returns drop.
Rental yields are at their lowest in nearly five years, as rapidly rising property prices outpace sluggish rent growth.
According to the RP Data figures, Melbourne’s average rental yield was now 3.3 per cent, the lowest recorded in a capital city.
Sydney recorded average yields of 3.7 per cent, the lowest since 2005.
Mr Kusher said that with the rate of capital gains outpacing rental growth, we are seeing rental returns reduce across all capital cities.
“In fact, over the past year gross rental yields have fallen across each capital city,” he said.
RP Data said the “surge” in building approvals over the past 18 months is a likely contributor to slower rental growth rates.
Mr Kusher said with the number of home sales rising as a result of new supply, more investor-owned properties and population growth slowing, renters now have more choice when it comes to housing options.
As a result, the owners of investment properties have less scope to increase weekly rents given the large supply of alternative accommodation options, he added.
“With such tepid growth in rents and such a high level of investment activity, it is clear that most investors are buying residential property with a view to capital growth rather than rental returns,” he said.