Two capital cities have managed to reach record-high rents for the March quarter of 2019, while Sydney’s rents are beaten out by another capital city for the most expensive, a new report has found.
The Domain Rental Report for the March quarter of 2019 has shown that house rents for the most part are on the rise.
Canberra took the crown for the most expensive rents of all the capital cities, while Sydney was in second place.
Both Brisbane and Adelaide managed to see rents hit record levels – Brisbane maintained its rents from the previous quarter, while Adelaide rents rose, the first time in over five years.
Meanwhile,rents are the most affordable around the country.
The Domain report also took a look at each capital city in detail:
On an annual level, Sydney was the only capital city to see both house and unit rents decline, according to the report, falling back to late 2016 levels for house rent and early 2017 levels for unit rents.
Market conditions are also pointing to it being very much a renter’s market with rental stock hitting record highs, with tenants being given more powers to negotiate with landlords, as more stock means it will be harder for landlords to differentiate in the market.
In fact, the current conditions are due in some part to the actions of investors in the previous boom.
“The heightened investor activity that peaked during the recent boom is now benefiting renters, as completed off-the-plan apartments add to supply,” the report noted.
“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.”
The report also stated that gross yields are at a two and a half year high, which means property value is declining 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,” the report noted.
“But astute investors in search of the right opportunity may find the softer market preferable.”
Units are finding modest success, with rents recording their strongest quarterly gain since the same quarter a year ago, but the rate of rental growth has slowed compared to last year.
The rental market has the potential to tighten due to investors leaving the market, the decline in dwelling approvals and a slowdown in apartment completions.
The combination of slowing migration, both interstate and overseas, and a rise in first home buyers is expected to ease demand, but population growth is still above the decade average, which creates pockets where power is in the hands of renters.
Gross rental yields for the capital city have seen their strongest annual improvement for seven years.
Rents are slowly rising in the greater Brisbane area, pushing the power back into the hands of landlords.
“Tenants will find the rental market is now entering new territory,” the report noted.
“Not only will they start to find competition to secure a lease has increased, the choice of available rental stock will be narrowing.”
The local economy is also set for success, with a relative level of affordability, solid job prospects, major infrastructure projects, and some spending coming in from the federal budget.
Coming in as the second most affordable capital city to rent, the South Australian capital city is seeing rents rising steadily, as house rents are at a record high and unit rents have held at last quarter’s record high, which means landlords have the power to rise rents.
This is also enhanced by the tightening vacancy rate, with the report giving it the title of 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,” the report stated.
“It is likely that tenants will be slugged with further rent hikes.”
The gross rental yields in the capital city are likely to attract further investor activity, especially with the lower entry cost into the market, especially with Sydney and Melbourne’s market softening.
Perth’s rents are the most affordable for houses and units out of any capital city, but the Domain report noted that the position of power could be shifted away from tenants soon.
“House rents have improved for two consecutive quarters and units have flatlined for two years,” the report stated.
“This is a marked improvement, and the first sign of consistent growth for houses, following rent falls that spanned roughly four years.”
The capital city’s declining vacancy rate has generated stabilising conditions since mid-2017, but with building supply starting to dry up, rental supply has taken a hit, and is expected to tighten further.
“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,” the report stated.
This rental supply slowdown is being met with population growth and the potential of more resource sector spending and more jobs, exacerbating the situation further.
Canberra saw the strongest annual growth out of every capital city and is currently number one for the capital city with the most expensive rents, $30 per week more expensive than Sydney.
Tenants are unlikely to see the power dynamic shift into their favour any time soon either, as they have seen rents rise for the last three and a half years, overtaking wages growth.
Units are a similar story, with Canberran unit rents the second highest out of all capital cities, and have been rising for nearly four years. However, unit rent growth is beginning to slow down.
The reasons for these conditions are due to rapid population growth with record levels of migration, higher levels of tourism and rising house prices, mortgage costs, rates and land taxes.
“All these factors have weighed heavily on landlords and most likely been passed onto tenants,” the report stated.
“However, Canberra units offer investors the highest of all the cities and they are rising.”
Hobart has seen its rents rise, even to the point of house rents surpassing Melbourne, Brisbane, Perth and Adelaide and unit rents overtaking Perth and Adelaide, and are about equal to Brisbane.
Rent rises are set to ease a little in the island state, even though rents have risen and the vacancy rate has tightened, the report stated.
Due to the level of growth seen in Hobart house prices, people are locked out of buying and have to settle for rentals, but the high growth also means investing in Hobart has become more costly. To offset this, and coupled with higher hold costs and mortgage costs, landlords are expected to raise rents.
Darwin has seen rents remain quite stable, with house rents holding for three quarters in a row, and unit rents for four quarters.
The annual decline of rents are also becoming more stable, as despite seeing the steepest falls out of all the capital cities, house rents are easing in comparison to last year, and unit rents are holding steady.
The vacancy rate is the highest nationwide, but is only a slight rise in comparison to 2018 levels.
Weak economic conditions and stalling population growth have impacted on rental demand, and while the Northern Territory government has policies in place to rectify the population growth to feed back into the economy, the full impact is yet to be seen, but the report noted that “a decade-long population strategy aimed at creating jobs and stimulating the economy is a start”.