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Concerns have sparked over renewed pressure on housing inflation following an acceleration of rental growth across Australia’s capitals.
The pace of rental growth has picked up for the first time in more than two years, igniting fears for housing inflation, according to Cotality data.
Cotality’s August Monthly Housing Chart Pack showed that the capital city rental value index rose 3 per cent in the year to July, up from 2.7 per cent in June, ending the 16-month run of moderating or stable rental growth.
Cotality economist, Kaytlin Ezzy, said it would be necessary to keep an eye on the data, given how housing has been a major factor in the consumer price index (CPI) measure.
“The housing component makes up more than one-fifth of the CPI basket, with rents alone accounting for 6.6 per cent,” she said.
Meanwhile, the Australian Bureau of Statistics’ latest quarterly CPI data showed that rents-paid rose 4.5 per cent over the year to June, but decreased from the 7.8 per cent rise seen over the year to March 2024.
Additionally, Cotality said a slight increase in construction costs also added to the inflation concerns, after the annual change in the Cordell Construction Cost Index rose 2.9 per cent over the year to June.
The figure is up from 2.6 per cent over the 12 months to June 2024.
“While still well below the pre-COVID decade average of 4 per cent, this re-acceleration mirrors the recent quarterly increases in the ‘new dwellings’ component of the CPI basket – the only subcomponent with a larger weighting than rents (7.6 per cent),” Ezzy said.
“With both rents and construction costs indicators trending higher, we could see housing inflation rise in the coming months which, if it feeds back into the inflation outlook, could lower the chance of future rate cuts,” she said.
Cotality said that, out of the individual cities, the re-acceleration of rental growth was led by Sydney and Brisbane.
In Sydney, the annual change in dwelling rates saw an uptick from 1.8 per cent over the year to May to 2.4 per cent over the 12 months to July.
Meanwhile, Brisbane’s annual change in dwelling rates rose 1.4 percentage points from February lows of 3.2 per cent to 4.6 per cent.
“In particular, these cities’ unit markets have driven this uptick, with the pace of rental growth in Brisbane and Sydney’s medium and high-density sectors up 2.3 and 1.1 percentage points respectively from recent lows,” Ezzy said.
Similarly, when it came to annual rental growth across capital city subregions, Brisbane and Sydney claimed five and four spots on the top 10 list, respectively.
“Despite the strong uptick in some regions, Melbourne, as a whole, is yet to see an uptick in the pace of rental growth, with annual increases holding steady at 1.1 per cent over the year to July,” Ezzy noted.
When it came to listings across the country, only 121,113 properties were observed for sale nationally over the four weeks to 3 August, almost 20 per cent below the average for the time of year.
“With demand expected to be further buoyed by the August rate cut, and conditions skewed towards buyers, we should be in for a strong spring selling season once the flow of new listings normalises,” Ezzy concluded.
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