Australia’s fastest-rising rental markets revealed

Landlords are making massive gains in Australia’s fastest-rising rental markets, but prospective investors have been urged to be wary of so-called ‘hotspots’ and carefully consider where the best potential for future returns may be. 

The rising rents have been a factor luring investors back into the property market, who have also been attracted by some of the biggest price growth in decades.

CoreLogic research shows that in the year to June 30, Australian median rents increased by 6.6 per cent, the strongest growth in more than 12 years. 

But analysis by research group and buyers agency Propertyology showed rents for three-bedroom houses in the country’s hottest markets had risen at a significantly faster rate.

Propertyology reviewed the advertised asking rent of more than 60 prominent Australian towns and cities, and after annualising rents and comparing prices to 18 months ago, an increase of $1,500 was found in more than half the locations.

Perth (with an average annual increase of $4,400) and Darwin ($7,000) led the charge among capital cities in terms of rent rises, while Sydney ($500) recorded modest increases and Melbourne floundered, with rents actually dropping by $1,250.

Dominating the list in terms of the highest rental gains were regional towns and centres.

Over the last 18 months, the standout increases in asking rents for three-bedroom houses were Coffs Harbour ($7,300), Noosa ($7,300), Byron Bay ($6,500), Gold Coast ($6,240) and Ballina ($6,000).

Propertyology head of research Simon Pressley said the data showed investors needed to look towards the regions if they sought the greatest returns on investment.

“The ‘capital’ in ‘capital city’ has absolutely nothing to do with capital growth,” Mr Pressley said. 

“We have always advocated that property investors would be wise to remove their blinkers and to try to learn what truly drives property prices. 

“In almost every year, the best-performed property markets are among the regions — there are 200 of them in total and only eight capital cities and over the last 20 years, the median house price has tripled in more than 100 of the regions.”

Mr Pressley said the pandemic may have hastened the flight to the regions but those seeking a sea or tree-change were not the only catalysts for the rising rents.

“Australians have been increasingly migrating to different corners of regional Australian for more than a decade, with official ABS data confirming that the combined capital city population produced a net decline of 136,000 over the last five years,” he said.

“COVID has merely accelerated something that was already happening.”

Biggest rental gains since start of 2020 

Coffs Harbour NSW - $7,300 

Noosa QLD - $7,300

Byron Bay NSW - $6,500

Gold Coast QLD - $6,240

Ballina NSW - $6,000

Launceston TAS - $5,200

Yeppoon QLD - $5,200

Sunshine Coast QLD - $5,200

Orange NSW - $4,700

Busselton WA - $4,500

Investors lured back

The rise in rent prices has been brought about by the volume of rental premises failing to keep up with demand. 

Nervous investors were briefly overtaken by first home buyers late in 2020, as happened back in the global financial crisis of 2008-09, but those investors are now being drawn back by the promise of rapid capital appreciation and strong rental yields in many places.

But rents aren’t rising as quickly as house prices. 

The average price of a home in Sydney went up by a staggering 13.5 per cent over the last 12 months, according to CoreLogic, a pace that, if sustained, would result in prices doubling every 5.5 years.

“Today’s low vacancy rates and fast-rising rents are not a COVID creation — with the exception of Melbourne and, in particular, Sydney experiencing high levels of investor participation from 2014 to 2017, locations all over Australia have consistently had low investor participation for much of the last decade,” Mr Pressley said. 

“As a consequence, the supply of extra rental stock has consistently been insufficient.”

Asked if these rent yield increases were sustainable, Mr Pressley told API Magazine that significant increases in the cost for rental accommodation will continue until such time as the volume of rental supply catches up. 

“In large parts of Australia, this may take a few years, even longer if APRA, yet again, pokes their fingers in places that they don’t belong,” he said.

So as those trying to get a grip on the property ladder fall further behind, investors continue to look for the properties that offer yields and potential capital growth.

Mr Pressley said investors should be looking beyond hotspot lists and their own backyards, especially those based in Sydney and Melbourne.

He said the best property investment decisions were made by removing all personal bias and stereotypes and objectively analysing the combined sum of property market fundamentals. 

“Rental supply is clearly one of those fundamentals and a good reason why both Sydney and Melbourne are far from the best markets for investing in right now,” Mr Pressley said.

“New construction supply and the outlook for local economic conditions are highest on Propertyology’s list of considerations.”

Apartment rents lag

Apartment rents rose around the country at a more modest pace to housing rentals, with the notable exception of Australia’s two biggest cities.

In Sydney, an annual rent decline of $5,700 was produced for two-bedroom apartments in the CBD. This included falls of $5,200 in the eastern suburbs, as well as lower north shore ($3,600), the inner west ($2,900) and Parramatta and Canterbury (each $2,500).

On the flipside, apartment rents were up significantly since the start of last year in Perth ($5,070), Darwin ($4,290), Hobart ($2,730), Canberra ($2,730) and Brisbane ($1950).

Inner city Melbourne apartments have proven increasingly attractive for first home buyers as prices have fallen due to oversupply, but for those opting to rent, the savings have been significant.

Rents in Melbourne’s Docklands fell by a whopping $10,000 in the last 18 months, with Southbank not far behind at $9,400. The CBD ($7,800), South Yarra ($6,200), St Kilda ($4,700) and Richmond ($4,400) have also pushed the patience of landlords.

Vacancies tighten

Meanwhile, national buyers agency Your Property Your Wealth has unearthed Australia’s most undersupplied rental markets, with some locations having virtually no availability for tenants.

Your Property Your Wealth commissioned Suburb Trends to analyse vacancy rates across the country, and found four capital city locations with vacancy rates of just 0.1 per cent in May.

Four of the top 10 most undersupplied rental markets were located in Brisbane, Perth and Adelaide laid claim to two each, while single suburbs in Hobart, Sydney and Melbourne made up the remainder.

Your Property Your Wealth director Daniel Walsh said while investor activity was rising, the fact that it was coming off such a low base meant that rental undersupply would be a feature of each market for the short-term.

“Rental markets were heading into undersupply territory long before the pandemic,” Mr Walsh said.

“This was because of the restrictive lending criteria that was implemented more than four years ago, which greatly reduced the normal flow of investment activity in the market.

“Now, the fallout of that policy has come home to roost, with hundreds of city suburbs across the country having very few rental properties available for prospective tenants.”

Australia’s tightest rental vacancy rates

Wanneroo WA - 0.1%

Onkaparinga SA - 0.1%

Longalea-Carbrook QLD - 0.1%

North West Hobart TAS - 0.1%

Redcliffe QLD - 0.2%

Salisbury SA - 0.2%

Stirling WA - 0.2%

Frankston VIC - 0.2%

Sandgate QLD - 0.2%

Narangba-Burpengary QLD - 0.2%