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Renters Advised to Look to Units for Greater Affordability
8 months ago
Renters Advised to Look to Units for Greater Affordability

The pick-up in rents is mostly a seasonal phenomenon, with the first quarter of the year historically showing an accelerating trend. However, there has also been a pick-up in the annual growth trend for rents, with the national rental index up from a recent low of 8.1% in October last year to 8.5% over the 12 months ending February.

Renters Advised to Look to Units for Greater Affordability

The acceleration in rental trends is being driven by the detached housing sector, in a reflection of Australia’s current preference for houses over units. Annual rental growth in houses has been trending higher since October last year, while the trend in unit rents is moving in the opposite direction, easing from a recent peak in April last year, when unit rents were up 14.0%. Since then, annual growth in unit rents has reduced to 9.6%.

“Although growth in unit rents is slowing, we are still seeing the cost of renting across the unit sector rising at a faster rate than houses across most jurisdictions,” CoreLogic’s research director, Tim Lawless says.

“A slowing in the pace of unit rents lines up with the peak in net overseas migration in the first quarter of 2023. However, worsening affordability pressures could be another factor in this sector, given unit rents have surged 24.1% higher over the past two years compared with a 16.6% increase in house rents.”

Perth Rents Surge Ahead

Similar to the trend in housing values, Perth stands out among the capital cities with a substantially faster rate of rental growth that is showing little evidence of slowing down.

“The same underlying factors that are rapidly pushing home values higher across Perth are at play in the rental sector, with demand substantially outweighing supply, keeping rental growth well above average levels,” Mr Lawless said.

Gross rental yields are holding reasonably firm across most markets, even rising a little nationally through late 2023 and into early 2024. The subtle rise in rental yields can be attributed to rental rates once again rising at a faster rate than dwelling values since November 2023. At a national level, yields are roughly in line with pre-COVID levels, but well above the record lows seen in 2021 when yields fell to 3.16%.

Outlook for Capital Values Improves

Indicators of a positive shift in market conditions go beyond a lift in value growth, including a rise in consumer sentiment, lower-than-forecast inflation, and a growing consensus that interest rates will reduce later this year.

An improvement in consumer spirits has historically played out positively for housing activity, with higher sentiment generally accompanied by a lift in home sales and vice versa. Westpac and the Melbourne Institute reported a 6.2% lift in the consumer sentiment index for February, taking the reading to the highest level since June 2022.

 

GROSS RENTAL YIELDS NATIONALLY

Sydney                  3.0%                

Melbourne             3.5%                 

Brisbane                3.9%                

Adelaide                3.9%                

Perth                     4.6%                

Hobart                   4.2%                                

Darwin                  6.6%                

Canberra               4.0%                

National               3.7%