Annual rental rate drops to record low 0.7%

Annual rental rate drops to record low 0.7%

Posted on Friday, September 11 2015 at 12:58 PM

A sharp rise in home values in two of Australia’s largest capital cities hasn’t flowed through to rental rates according to the latest CoreLogic RP Data rental review, which reveals that rental increases are now at their slowest pace on record, at 0.7% over the year.

Based on the August analysis:

• Weekly rents fell by a further -0.4 per cent over the month of August
• Rental growth across the combined capital cities dropped to a new
  record low of 0.7 per cent over the year.
• Sydney rents rose just 2.3 per cent over the year.
• Rents have fallen over the past year in Adelaide, Perth and Darwin.
• Combined capital city rental rates are recorded as $487/week for
  houses and $462/week for units.

CoreLogic RP Data research analyst Cameron Kusher is anticipating that
the rate of rental growth will continue to slow over the coming months due to
increased housing and rental stock supply, and slower migration rates.

“Based on year-to-date data results, rental growth conditions have
softened during 2015,” he says.

“The 0.7 per cent rise in rental rates over the past year is the slowest
rate of rental growth on record based on data that goes back as far as December
1995.

“The reasons behind this lacklustre result for the rental market can be
attributed to the extent of the current construction boom across the capital
cities and slowing population growth.

“Added to this is the surge in investor participation in the housing
market, which is contributing to weaker rental growth by adding to the rental
stock,” Kusher says.

The three cities to experience the largest ramp-up in new housing supply
and investor activity over recent years, and the only three cities to record
annual rental growth, are Sydney, Melbourne and Brisbane. It should be noted
that these three cities have still seen a fairly sharp slowdown in rental
growth.

Over the past month, weekly rents have moved lower across every capital
city except Sydney and over the past three months rents are lower in all cities
except for Melbourne, where they’re unchanged.

According to Kusher, the gap in the cost of rentals remains
significantly lower than the actual purchase cost of a house relative to a
unit.

• Over the past month, house rents have fallen by 0.5 per cent while
  unit rental rates were unchanged.
• Combined capital city house rents were recorded at $487 per week in
  August 2015 and unit rents were $462 per week.
• Over the three months to August 2015, rental rates for houses are down
  1.0 per cent, while for units they have increased by 0.2 per cent.

The rental data points show that the recent rate of rental growth has
started to slow even further. Over the past year, house rents have increased by
0.5 per cent while units have recorded a greater 1.6 per cent annual rise.

Kusher says annual rental growth is crawling along at its slowest pace
on record, and well below its 10-year average levels. The 10-year annual rate
of rental growth is currently higher than growth over the past year across each
capital city.

“Additional accommodation being provided by the current building boom
along with record high levels of investment purchasing is adding substantial
new dwelling supply to the market at a time where the rate of population growth
is slowing,” he explains.

“At the same time… the rise in home values is pushing rental yields
lower. Across the combined capital cities, gross rental yields sit at record
lows of 3.4 per cent for houses and 4.3 per cent for units.

“The ongoing decline in yields is largely being driven by Sydney and
Melbourne, where rental growth is sluggish and value growth is strong. As a
result both cities currently have record low rental yields.”

 

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