Canberra is now the most expensive city in Australia to rent a house, usurping Sydney’s long-standing claim to that ignoble title last quarter, while Perth remains the country’s most affordable city to rent both houses and units, according to the Domain Rental Report for the March quarter of 2019.
The report also found that it is now more expensive to rent a house in Hobart than in Melbourne, and that Adelaide house rents, along with Melbourne and Brisbane unit rents, have reached record highs.
The report found that Sydney defied the national trend of rising rents and became the only capital city to record annual falls for houses and units.
Domain senior research analyst Dr Nicola Powell said that house rents are now back to late-2016 prices and unit prices back to early-2017.
“Rental conditions have started to favour tenants, with the availability of advertised stock hitting an all-time high,” she said.
“The heightened investor activity that peaked during the recent boom is now benefitting renters, as completed off-the-plan apartments add to supply. We may also be seeing some home owners opting to lease their homes rather than sell in a challenged market, in the aim of holding until sale prices start to rise again.”
Ms Powell said that gross yields have hit a two-and-a-half-year high, suggesting that property values are falling faster than rents.
“However, with yields remaining weak, and capital gains in the short term unlikely, Sydney isn’t currently a hugely attractive market for investors. But astute investors in search of the right opportunity may find the softer market preferable.”
It is now cheaper to rent a house in Melbourne than Hobart, the report found, something that has never been recorded before.
“The first quarter of the calendar year is typically strong for rental price growth, with Melbourne unit rents recording the strongest quarterly gain since the March quarter last year,” Dr Powell said.
“Faced with record-high unit rents, tenants will welcome the news that the rate of growth has slowed compared to last year.”
She predicted the rental market tightening further as investor activity retreats, dwelling approvals fall and apartment completions slow.
“Slowing interstate and overseas migration and increased first home buyer participation will ease the demand to a certain degree.
“That said, population growth remains higher than the decade average even though it has fallen from the unprecedented levels seen in 2016–17. Under the current conditions, there will be pockets of Melbourne that place tenants in a better bargaining position.”
Dr Powell added that gross rental yields recorded the strongest annual improvement since 2012, as prices fall and rents rise.
Greater Brisbane’s rental market is slowly changing to favour landlords, with rents rising and yields improving, the report found.
Dr Powell said that the extended period of heightened rental supply (from 2012 for roughly half a decade) appears to be coming to an end.
She said that tenants will find the rental market is now entering new territory.
“Not only will they start to find competition to secure a lease has increased, the choice of available rental stock will be narrowing.
“Median weekly rents have already started to climb while the vacancy rate slides. This turnaround follows almost four years of stagnant rents. We may see landlords starting to hike rents as advertised stock dwindles.”
Dr Powell said that available rentals are at a three-year low.
“Brisbane’s relative affordability and rising job prospects continue to draw residents from interstate.
“Major infrastructure projects are set to inject significant economic benefit through job creation and spending in the coming years. The federal budget’s infrastructure focus, which includes the announcement of fast rail connecting the Sunshine Coast, and the Gold Coast, to Brisbane, will help to boost local confidence, attract interstate residents and place additional demands on the rental market.”
The report found that Adelaide remains the second most affordable capital city to rent.
“Rental prices are steadily rising in the South Australian capital, with unit rents surpassing Perth last quarter for the first time,” Dr Powell said.
“House rents are now at a record high while unit rents held at the record high achieved last quarter. Unit rents have been improving annually for two years, giving landlords stronger grounds to raise rents. While house rents have achieved almost two years of annual growth, the pace of growth is on par with that recorded last year.”
She also said that Adelaide’s vacancy rate indicates that the rental market is tightening, making it the third most competitive capital city for tenants.
“Available rental stock has been sliding since mid-2017, and overseas migration edges higher, placing further pressure on rents. It is likely that tenants will be slugged with further rent hikes.
“Gross rental yields could attract investor activity, particularly given the lower purchasing cost relative to the eastern seaboard. Annually, house yields nudged marginally higher for the first time in just over five years, while unit yields have been improving for a year. The diminished prospect of capital gains and weaker yields in Sydney and Melbourne could see investors seek markets that have avoided the east coast price surge.”
Perth remains the most affordable capital city to rent a house or unit, the report found, but after a prolonged period of favourable conditions, it could be on the verge of a turnaround.
Dr Powell said that house rents have improved for two consecutive quarters and units have flatlined for two years, adding that this is a marked improvement, and the first sign of consistent growth for houses after four years of rent falls.
“Perth’s vacancy rate has rapidly declined since mid-2017, which, combined with a more stable rental price outlook and rising returns for investors, could suggest the market is recovering.
“As the building boom comes to an end, and with development completions declining, it has significantly impacted the supply of rental properties. It is no surprise that available rental stock hit a four-year low for a March quarter. It is expected that supply will tighten further as building approvals track lower, providing a better forward indicator.”
She also said that the slowdown is being met by increased demand.
“This could be stretched further as increased investment in the resources sector, greater job prospects and rising consumer sentiment act to lure more residents west.
“Given access to credit remains tight, which could be resulting in residents remaining tenants for longer. Foreign buyers may also be deterred from investing due to now being slugged with the 7 per cent residential owner duty surcharge introduced at the beginning of this year.”
According to the report, Canberra has experienced the strongest annual growth in rents of all capital cities.
“Surging rental prices have pushed the rent price gap further ahead of Sydney by $30 a week,” Dr Powell said.
“There appears to be no reprieve in sight for tenants given the pace of rent rises is increasing. Tenants have been faced with three-and-a-half years of growing rental prices, stretching affordability by outpacing wages growth.”
She also said that Canberra is the second most expensive capital city to rent a unit.
“Tenants have been faced with almost four years of rising unit rents; however, the pace of unit rent growth is now slowing — a counterintuitive scenario given the fact Canberra has experienced a development boom over recent years.”
Dr Powell said that a number of factors have been driving rents up and pushing vacancy rates down.
“Population growth has been rapid, with a record number of migrants moving to the nation’s capital, tourism numbers are up as the city becomes more globally connected, house prices have risen, and holding costs have escalated due to increased mortgage costs, higher rates and land taxes. All these factors have weighed heavily on landlords and most likely been passed onto tenants. However, Canberra units offer investors the highest of all the cities and they are rising.”
The cost of renting a house in Hobart is now higher than Melbourne, the report found.
“In two short years, house rents have gone from the most affordable to surpassing Adelaide, Perth, Brisbane and Melbourne. At the same time, unit rents have surged [and] passed Adelaide and Perth, and are now on par with Brisbane,” Dr Powell said.
She added that rental affordability is being pushed to its limits in Hobart.
“However, despite rental price rises, a tightening vacancy rate and a heightened competition between prospective tenants, the pace of annual growth has eased from the double-digit rent rises recorded last year.
“The cost of purchasing a home has jumped, locking many out of home ownership and keeping them in rentals. It has become more expensive for investors to gain access. Coupled with higher holding costs and rising mortgage costs, landlords will be offsetting these expenses by increasing their tenants’ rent.”
Darwin experienced the greatest rental stability the city has seen in a number of years, according to the report.
Dr Powell said that house rents have now held flat for three consecutive quarters and unit rents for four consecutive quarters.
She said that, although house rents made the steepest annual fall of all the capital cities, the depth of falls has eased relative to last year, while units held steady.
“Darwin’s vacancy rate has risen dramatically in recent years since prices reached a peak in 2013. It is only slightly elevated compared to last year, but does remain the highest in the nation.
“Weak economic conditions and stalling population growth have weighed on the demand for rental accommodation. The Northern Territory government has policies specifically designed to address the population woes, through financial incentives designed to encourage new residents to relocate. The impacts of this policy are yet to be seen, but a decade-long population strategy aimed at creating jobs and stimulating the economy is a start.”