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Multi-speed capital city markets confirmed again, new report finds

18 January 2018 Tim Neary
rental prices, Australia’s capital cities

Rental prices for the December quarter show again how Australia’s capital cities dance to different drum beats, as Sydney prices ease slightly while Canberra and Hobart markets continue to grow, according to the quarterly Domain Rental Report.

Domain data scientist Dr Nicola Powell said that varying levels of population growth, residential construction and investor activity are producing different market conditions across the country’s capital cities.

She said that there were diverse changes in median rental prices across the capital cities over the quarter.

“Canberra and Hobart, two cities at opposite ends of the affordability spectrum, saw the greatest price growth,” Dr Powell said.

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“Even though there’s a distinct gap in their median rental prices, it’s clear that tenants in both cities are facing a competitive rental market.”

The report found that Hobart continues to provide the best gross rental yields for houses, with 5.34 per cent recorded over the December quarter. Sydney and Melbourne continue to record the lowest gross rental yields for houses of all capital cities, at 3.08 per cent and 3.20 per cent, respectively.

Canberra is the top performer for gross unit rental yields, recording 5.80 per cent over the quarter, closely followed by Darwin at 5.67 per cent and Hobart at 5.52 per cent.

Sydney

Median weekly rental prices for units in Sydney’s competitive rental market decreased over the quarter, with median rental prices falling by 0.9 per cent to $545 per week.

“The $5 drop makes unit rental prices lower than house rental prices for the first time in two quarters,” Dr Powell said.

She added that despite the quarterly decline, median unit rental prices are 4.8 per cent higher than the same time last year.

Median house rental prices remained steady over the quarter at $550 per week. House rental prices have seen no price movement for three quarters and have grown only by 1.9 per cent year-on-year.

Dr Powell said that if investor activity continues to decline in Sydney, it could tighten the rental market in 2018.

“However, the value of building completions is reaching a high, providing a boost to unit rental stock.”

She said that the trend is likely to continue over the coming months, as stock from off-the-plan sales comes onto the market.

“This could provide tenants with a greater choice in certain pockets of Sydney,” Dr Powell said.

Melbourne

The report found that median weekly house rental prices in Melbourne gained 1.2 per cent over the December quarter and 3.7 per cent year-on-year, reaching a new record high of $425 per week.

Equally, median unit rental prices increased by 5.3 per cent annually to $400 per week and remained steady over the quarter.

Dr Powell said that a difference of $25 now exists between house and unit rental prices, with price gains growing more rapidly for unit rental prices than house rental prices.

“If this rate continues, prices may eventually be on par, mirroring the trend previously seen in Sydney,” the data scientist said.

“As the impact of tighter investor lending continues to unfold, it is likely to drive competition for available rental stock.

“The capital’s soaring population, spiked by all three population drivers — natural increase, overseas and interstate migration, and less available rental stock — will put additional pressure on rental prices.”

Brisbane

Brisbane house rental prices remained stable at $400 per week over the December quarter.

“It was the only capital city market with no change to house rental prices both over the quarter and over the last 12 months,” Dr Powell said.

The report also found that median unit rental prices decreased by 1.3 per cent over the year. However, prices held steady over the quarter at $370 per week.

“It has been roughly half a decade since investors in Brisbane saw a significant growth in rental prices.

“Prices in the capital have continued to be impacted by high levels of unit development, giving landlords little ground to raise rental prices.”

Adelaide

Adelaide’s median house rental prices grew by 2.8 per cent over the December quarter and the year, reaching $370 per week.

Ms Powell said that this quarterly growth is the first gain for Adelaide house rental prices following three quarters of prices holding steady.

Median unit rental prices remained flat at $295 per week.

“Adelaide is the most affordable rental market of all the capital cities, despite a 1.7 per cent gain year-on-year,” Dr Powell said.

She added that Adelaide continues to be a relatively steady market.

“Units [are] delivering stable returns for investors in the market.

“Available house stock has now tightened for three consecutive quarters, providing a short-term pressure and growth in median rental prices.”

Perth

Median house rental prices in Perth held steady this quarter at $350 per week. The median rental price fell by 5.4 per cent over the year, but the rate of decline is now easing.

Median unit rental prices were also stable over the December quarter, at $300 per week. The median has now held flat for four consecutive quarters, which is the longest period of quarterly stability in Perth’s rental price history (recorded since 2004).

“Perth continues to be one of the nation’s most affordable rental markets and was the only capital city with an annual decline in house rental prices,” Dr Powell said.

“While falling rental prices have become the norm over recent years, the rental market has begun to show signs of transitioning conditions, with hefty declines in rental prices no longer being recorded in Perth’s unit market. Investors in the capital have also seen an annual growth in rental yields for houses.”

Canberra

House rental prices in Canberra increased by 5.9 per cent over the quarter to reach a new record of $540 per week. Prices are 8.0 per cent higher than this time last year, making the nation’s capital the second-strongest market for house rental prices growth.

Canberra was one of the two capital cities with growth in median unit rental prices over both the quarter and year, up by 2.4 per cent to $430.

Dr Powell said: “The healthy quarterly gain in Canberra has helped to push up gross rental yields for units to 5.80 per cent, the highest yielding output of all the capital cities.

“Affordability remains a key issue for Canberra tenants. It is the third most expensive capital city for house rental prices and second for units. If stricter investor lending hits rental stock in the year ahead, it could lead to a further growth of rental prices in an already expensive market.”

Hobart

Over the December quarter, Hobart median house rental prices had the highest rate of growth on record for the city. They increased by 6.8 per cent over the quarter and 12.9 per cent year-on-year to $395 per week.

Dr Powell said that this is an “astounding” $45 increase compared to the same time last year.

She said that Hobart is the only capital city to reach double-digit annual growth in house and unit rental prices. Median unit rental prices grew by 6.3 per cent over the quarter and a whopping 13.3 per cent annually, reaching $340 per week.

“Hobart currently has strong levels of migration and not enough rental supply to keep pace,” Dr Powell said. “Investors are reaping the highest gross rental yields for houses out of all the capital cities at 5.34 per cent and the third best for units at 5.52 per cent, falling just behind Canberra and Darwin.”

Darwin

House rental prices increased by 5.8 per cent over the quarter, setting median weekly rental prices at $550.

Dr Powell said that this growth makes Darwin, alongside Sydney, the most expensive city in which to rent a house in Australia.

Median unit rental prices grew by 3.8 per cent over the quarter to $415, with units in Darwin producing the second-highest rental yields of all the capital cities at 5.67 per cent. 

Overall, unit rental prices for the capital city have fallen, decreasing by 5.7 per cent over the year.

The Domain data scientist said: “Economic health, investment and population fluctuations have a large impact on the Darwin rental market.

“This quarter, house rental prices had the strongest growth rate in five years. Units continue to provide high-yielding outputs for investors, and in the year ahead, it’s likely we will see unit supply levels continue to affect unit values and gross yields.”

Multi-speed capital city markets confirmed again, new report finds
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