Rising Rents Good News For Landlords

Regional areas and remote capitals leading the charge

Rents are continuing to rise across Australia, with national rental rates surging 3.2 per cent in the 2021 March quarter – the fastest price jump in 15 years.

However, landlords in Sydney and Melbourne aren’t enjoying the benefits of the rapid growth as much as those in other parts of the country. Two of the biggest growth areas for rents were Perth and Darwin where rents jumped 8.2 per cent and 7.0 per cent respectively.

Housing market analyst CoreLogic’s latest Quarterly Rental Review found movement in regional markets played a big role in pushing up the national trend, increasing by 4.1 per cent compared to 2.9 per cent in capital cities. There was far greater demand for units in regional markets with that sector recording quarterly rental growth of 4.8 per cent. This is more than double the rise in city units at two per cent. The house rental market in regional Australia recorded rent rises of four per cent while capital city house rents rose 3.3 per cent.

“While housing rents are rising at the fastest pace since 2007, the headline reading hides the sheer diversity of rental conditions around the country,” says CoreLogic Research Director Tim Lawless. “At one end of the spectrum, we have Perth and Darwin where annual rental growth is well into double digits and accelerating. At the other end is Melbourne and Sydney where rents are down over the year.”

The quarterly report found that it was Darwin that recorded the strongest growth in rental rates over the quarter, with house rental rates up 8.2 per cent and units increasing by seven per cent.

Rental rises in the March quarter

• National average: 3.2%
• Regional average: 4.1%
• Capital city average: 2.9%
• Regional units: 4.8%
• Regional houses: 4%
• Capital city units: 2%
• Capital city houses: 3.3%
• Source: CoreLogic Quarterly Rental Review

Source: CoreLogic Quarterly Rental Review

Mr Lawless says the rapid rise in rental returns in Perth and Darwin were outstripping housing values and consequently driving a rise in yields. However, he warns that although rental rates are rising across Australia, there was a cautionary tale in the figures with rental yields being compressed in Sydney and Melbourne because housing values were continuing to rise.

“In Sydney and Melbourne, rental yields are plumbing new record lows,” Mr Lawless says. “Outside of Sydney and Melbourne, with mortgage rates so low, yields are generally high enough to provide investors with positive cash flow opportunities from the outset.”

This phenomenon was expressed in the national gross rental yields which were recorded at 3.55 per cent, down from 3.71 per cent over the December quarter and 3.76 per cent a year earlier as dwelling values outperform rental growth.

Mr Lawless says the annual decline in rents across Australia’s two largest cities is attributable to falling rents in the unit sector, where closed international borders have created a demand shock in a market that was already challenged by high supply. “Melbourne unit rents have fallen by 8.2 per cent over the year and Sydney unit rents are 4.9 per cent lower,” he says. “Prospects for a material improvement in rental conditions across these inner city-high density precincts are largely dependent on a return of tenancy demand from international students and visitors, who were previously a key component of rental demand.”

On a capital city comparison, Darwin was the highest yielding capital city, up 21 basis points over the month to 6.21 per cent while Sydney remained the lowest yielding at 2.74 per cent.

Australia’s capital city, Canberra is now the most expensive place to rent a unit with an average rental price of $513 per week. In comparison, Sydney’s units were averaging around $511 per week, while the median house rental price was $631. Melbourne’s unit rental rate remained unchanged but house rentals increased by just 1.6 per cent.