But new report shows growth in sector starting to ease
While millions of Australians are paying record high rents and many other prospective tenants struggle to find available properties, a new report shows there are signs the red-hot market is slowly coming off the boil.
CoreLogic’s Quarterly Rental Review for Q4 2022, released on January 11, showed that despite national rent values increasing 10.2% in 2022, a record high for annual rent growth, the pace of rental growth slowed for the second consecutive quarter.
The property data analysis firm said this was possibly due to a seasonal lift in rental stock combined with affordability constraints.
The pace of rent value growth was 2% in the December quarter, down from 2.3% growth in the September quarter, and a peak quarterly growth rate of 3.0% in the three months to May.
CoreLogic head of research and report author Eliza Owen (pictured above) said December marked the second consecutive quarter that the pace of growth slowed, and coincided with a small lift in the rental vacancy rate to 1.17% in December (up from a recent low of 1.05% in the previous month).
“The decline in quarterly rental growth rates observed in the December quarter was led by the capital cities where rents continued to increase but at a slightly slower rate than they have done in September and June quarters,” she said.
“While a slowdown in the pace of rent rises could be a sign that the rental market is starting to shift, it’s not great news for tenants just yet. Rents are still rising in most capital cities and regional areas with vacancy rates low.”
Since the rental market took off in September 2020, Australian rent values have risen 22.2%, marking the largest rental upswing on record (based on the CoreLogic hedonic rental index back series, which goes back almost 18 years). During this 27-month period, the median weekly rent valuation across Australian dwellings rose from $430 per week to $519 per week.
Higher rental yields had also encouraged investors to return to the Sydney market with MPA revealing in October the top 20 suburbs by gross rental yield and highest capital gain.
Supply side reaches a seasonal peak
Owen said the small lift in the rental vacancy rate to 1.17% in December, up from a low 1.05% in November and slowing rate of growth could be due to several factors.
“It is not entirely clear whether the rental market will continue inching toward a turning point, or if this is a temporary, seasonal reprieve due to higher new listings through December,” she said.
“New advertised rent listings saw a seasonal peak in the four weeks to December 11. Through this period, 50,867 new advertised rental listings were counted by CoreLogic, which is the highest volume observed since mid-February, another seasonal high point.
“However, it’s important to recognise despite the increase in rental listings, the figures remain 13.8% lower than the previous five-year average for this time of year.”
Owen said with another seasonal uplift in advertised rents expected in the next few weeks, rental growth could ease further.
Capital cities vs regional rents
The CoreLogic Q4 Rental Review report showed quarterly growth in the combined regional rent market was 1.3%, unchanged from the previous quarter, though there were some mixed outcomes in rental performance below this figure
Owen said the quarterly pace of rent value growth lifted in most regional markets, though it declined across regional Northern Territory, regional South Australia and regional Queensland.
Rent value growth jumped across regional Tasmanian dwellings in the December quarter, to 3%, up from 0.3% in the September quarter. Tasmania has seen a strong surge in net overseas migration post pandemic travel restrictions, which may be pushing rental demand higher, Owen said.
Capital best and worst performers
In Canberra, there was a -0.7% decline in dwelling rents over the quarter, comprised of a -0.8% fall in house rents and a -0.2% decline in unit rents. Canberra rent values have fallen a cumulative -1.1% since peaking in June, following a trough-to-peak upswing of 18.1% from September 2020.
Darwin house rents declined by -0.3% in the December quarter, reflecting a rapid deceleration in rental value growth, with the quarterly increase sitting at just 0.3%, down from 3.6% in the June quarter.
Owen said there was a notable slowdown in rental value increases in Adelaide – dwelling rent appreciation was 1.4% in the December quarter, down 220 basis points from the previous quarter.
Brisbane also experience a notable drop in the rate of quarterly dwelling growth, at 160 basis points.
Quarterly growth in Sydney and Melbourne dwelling rents declined a milder 20 basis points, while Perth was the only capital city rental market where there was an increase in the rate of quarterly growth.
Canberra maintained its position as Australia’s most expensive capital city rental market by just $2, with a median weekly rental value of $681, followed by Sydney ($679 per week) and Darwin ($594 per week).
Melbourne remains Australia’s most affordable capital city for rentals at $507 per week, followed by Adelaide ($518 per week), Hobart ($552 per week) Perth ($553 per week) and Brisbane ($588 per week).
Gap between house and unit rent narrows
The growth in Australia’s unit rents remained high at 2.8% in the December quarter, while house rents rose 1.7% for the same period.
The unit market had enjoyed higher rates of quarterly growth than houses since February 2022, however growth across both housing types remained high relative to historic averages.
Owen said this trend broadly coincides with the repeal of overseas travel restrictions to Australia, suggesting the return of overseas migration could be diverting additional demand to the high-density housing market.
Yields continue to improve
CoreLogic also revealed that the growth of rent values had outpaced purchase values on a monthly basis since February 2022, leading to an improvement in national gross rent yields of 57 basis points.
Nationally, gross rent yields across all dwellings increased to 3.78% in the December quarter, which still well below the pre-COVID decade average of 4.24%.
Rental market unclear for 2023
The rental market outlook is mixed for 2023, with an increase in demand from international visitors during a time of weak confidence among property investors, Owen said.
“On the one hand, returning overseas migration is likely to place continued demand on rental markets popular with overseas arrivals. Historic migration data suggests this would be Inner Melbourne, the south east of Melbourne, the west suburbs of Melbourne and Sydney's inner south west,” she said.
“On the flip side investor activity, and therefore rental supply, is not expected to pick up substantially in the year ahead. Even though rent yields are rising, investors are facing higher interest costs, and reduced capital growth prospects.”
A seasonal uplift in new advertised listings is expected in the first quarter of 2023.
“This is likely to provide more choice for renters and demand-driven shifts such as more share housing, and internal migration to more affordable markets, may also help to ease rental conditions,” Owen said.
