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House rents up but units not doing as well, Domain report finds

10 January 2019 Tim Neary
House for rent

While house rents in most capital cities edged higher over the December quarter, unit rents faired differently, falling in some and remaining stable in others, according to the Domain Rental Report for the December quarter of 2018.

This, the report found, is the result of unprecedented levels of building completions along with heightened investor activity.

Domain senior research analyst Dr Nicola Powell said that the market is on the turn.

“It is a slow recovery from historical lows for gross rental yields, as dwelling values edge lower and rents modestly higher,” she said.

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“The numbers show that nationally, rents are holding firmer relative to dwelling values, given the improvement in rental yields.” 

Sydney

In Sydney, house rents declined by 1.8 per cent to $540 per week. Rental yields increased by 0.9 of a percentage point to 3.24 per cent. Unit rents declined by 2.8 per cent to $530 per week. Rental yields increased by 0.1 of a percentage point to 3.87 per cent.

Dr Powell said that Sydney is no longer the nation’s most expensive capital city to rent a house.

“House rents declined annually for the first time in more than 12 years and are now back to 2016 levels.

“Unit rents are also declining and, for the first time since Domain rental records began in 2004, have fallen for two consecutive quarters.”

She said that the cost of renting a unit has now returned to 2017 levels and that she expects to see rental supply to increase further in 2019.

“Tenants will find greater bargaining power as rising supply keeps pressure on rents, providing strong grounds to negotiate lease terms.

“Landlords will be keen to retain good tenants as leases expire, with incentives and rental discounts a realistic prospect.”

Melbourne

In Melbourne, house rents increased by 2.3 per cent to $440 per week. Rental yields improved by 1.4 per cent to 3.20 per cent. Unit rents remained stable at $410 per week. Rental yields improved by 0.7 of a percentage point to 4.41 per cent.

Dr Powell said that rental prices continue to rise, but at a slower pace.

“Despite a large pipeline of new apartments hitting the rental market in recent years, competition has been driven by strong population growth.

“However, with interstate and overseas migration slowing from their historical highs, we could see demand soften over the longer term.”

Canberra

In Canberra, house rents increased by 1.8 per cent to $560 per week. Rental yields improved by 1.4 per cent to 4.36 per cent. Unit rents increased by 3.3 per cent to $465 per week. Rental yields improved by 1.3 per cent to 6.02 per cent.

Dr Powell said that Canberra is now the most expensive capital city to rent a house.

“The cost of renting in Canberra is now higher than Sydney — something that hasn’t happened for 11 years,” she said.

She described the market as being “tight and challenging”.

“Tenants are faced with a dwindling pool of rentals,” Dr Powell said.

“House rental listings have been shrinking for three years and unit listings have decline for just over a year on an annual basis. This has resulted in a five-year low of advertised rentals for a December quarter, a concerning scenario given we’ve now entered the peak rental period.

“An influx of university students and government professionals due to commence study and jobs in early 2019 is likely to place additional pressure on the rental market.”

She also said that a number of factors have contributed to Canberra’s rental boiling point.

“New residents continue to be lured from interstate and overseas by greater job prospects and the city’s growing and reputable university sector, while transient contract workers are attracted by the major infrastructure projects underway.

“The high-income earning workforce has also helped to drive rents higher, making it increasingly unaffordable for lower-income households.

“Additional rental demand may have stemmed from the Mr Fluffy asbestos removal scheme, placing residents in rental accommodation as they build their new homes.”

Brisbane

In Brisbane, house rents increased by 2.5 per cent to $410 per week. Rental yields declined by 0.3 of a percentage point to 4.62 per cent. Unit rents increased by 1.3 per cent to $380 per week. Rental yields declined by 0.2 of a percentage point to 5.12 per cent.

“The Brisbane market is slowly turning to favour landlords as underlying demand begins to absorb advertised rental supply,” Dr Powell said.

“Available rental stock has been sliding since the end of 2017, and is now at a three and a half year low. If this continues, greater competition between tenants will emerge, putting further upward pressure on rental prices, a marked change given the prolonged period of stability.

“House and unit rents are already displaying a higher pace of growth relative to last year, with houses recording the first positive movement and units the strongest gain on an annual basis in roughly three years.”

Adelaide

In Adelaide, house rents increased by 1.3 per cent to $380 per week. Rental yields decreased by 0.2 of a percentage point to 4.45 per cent. Unit rents increased by 3.3 per cent to $310 per week. Rental yields improved by 1.2 per cent to 5.25 per cent.

Dr Powell said that Adelaide is no longer the most affordable capital city to rent a unit.

“Surging unit rents over the past quarter has resulted in Adelaide surpassing Perth, which is now the cheapest city to rent both a house or unit. Adelaide house and unit rents are now at record highs, but unit rents are growing faster than houses.

“Demand for Adelaide rentals is being driven by continued employment growth as well as increased overseas migration, which has hit an eight-year high.”

She also said that the number of residents leaving the state is at a near three-year low.

Perth

In Perth, house rents increased by 2.9 per cent to $360 per week. Rental yields increased by 1.2 per cent to 4.34 per cent. Unit rents remained steady at $300 per week. Rental yields improved by 2.7 per cent to 4.75 per cent.

Dr Powell said that Perth house rents have increased annually for the first time in half a decade.

This, she said, has helped drive gross yields higher.

“While unit rents have remained flat for seven consecutive quarters, this is a marked improvement following four years of weakening prices up until 2017.”

She said that all signs point to a turnaround in Perth’s rental market.

“Demand for rental accommodation will be supported by an improving jobs market and local economy, giving residents greater incentive to stay and new residents reason to relocate west.”

Darwin

In Darwin, house rents held steady at $500 per week. Rental yields declined by 2.9 per cent to 4.75 per cent. Unit rents held steady at $400 per week. Rental yields declined by 3.1 per cent to 5.95 per cent.

Dr Powell said that a slow demand for rental accommodation has been largely underpinned by weak economic conditions.

“While the major capital cities are entering policy discussions to limit population growth, the Northern Territory government is desperately trying to boost its population by offering a financial incentive to encourage new residents to relocate.”

She said that the package will form part of a 10-year population strategy.

Hobart

In Hobart, house rents increased by 2.4 per cent to $420 per week. Rental yields improved by 3.4 per cent to 5.08 per cent. Unit rents increased by 8.6 per cent to $380 per week. Rental yields improved by 2.2 per cent to 4.87 per cent.

“A growing economy, record levels of tourism and rising migration have all weighed heavily on Hobart’s rental market,” Dr Powell said.

“Despite interstate migration easing from recent highs, further rental growth remains reliant on supply. This supply is also likely being hit by investors favouring the short-term holiday letting market over the traditional rental market.”

She said that the banks knocking back investor loans (over the past couple of years) has lowered advertised rental stock to a seven-year low.

House rents up but units not doing as well, Domain report finds
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