Rent growth stalls across major cities as tenants finally catch a break

Renters around Australia are breathing an overdue sigh of relief.

Five capital cities around the country recorded the same zero per cent change in median asking rents for houses over the past three months.

Nationally, there was no change in either unit or house rents over the past quarter after several years that had crunched renters.

Combined capital city house rents have remained flat for five consecutive quarters, the longest period of stability since 2014-16.

Unit rents across combined capitals have also flatlined for two consecutive quarters, a first in a decade. Perth saw its first unit rent decrease since 2017, while Hobart saw its first decrease in over a year.

Darwin defied the stabilisation of rental growth, recording a huge 5.9 per cent increase in asking rents in just three months. Unit rents were up by 3.1 per cent.

Sydney remains the most expensive city in which to rent ($780/week) but second-placed Darwin is rapidly closing the gap ($720/week).

Domain’s September Quarter Rent Report released Thursday (9 October) showed that rapid rent increases over the past three years have finally come to an end.

Dr Nicola Powell, Domain’s Chief of Research and Economics, said the broad flatlining of rents was welcome news for renters who are still paying record-high rents in almost every market.

“After three years of relentless price hikes, we’re finally seeing a much-needed pause across Australia’s major cities.

“For the first time in nearly a decade, rent growth has stalled for two consecutive quarters, offering renters a rare moment of stability.

“House rents stalled first, and now unit rents have followed as tenants reach their affordability limits.”

She added the expanded federal government Home Guarantee Scheme that came into effect at the start of the month might also reduce renter demand.

“With the expanded Australian Government 5 per cent deposit scheme, more renters are also likely to transition into home ownership, which could ease rental demand over time, however, vacancy rates below 2 per cent mean landlords could still hold the upper hand, keeping the market competitive and challenging.”

Rents high but yields slipping

Cotality also released its quarterly rental overview this week, with a deceleration in rent prices evident across the country. It found that national rent values rose 0.8 per cent in the September quarter, down from a 1.3 per cent rise seen in Q2.

Regional rental growth continues to outpace the capitals.

The capitals (2.1 per cent) saw a larger rebound in the annual rate of growth than the regions (2.5 per cent), lifting one percentage point and 70 basis points respectively.

With dwelling values up 4.4 per cent and rental values up 2.8 per cent since the first rate cut in February, national gross rental yields have eased four basis points, to their lowest level since November last year (3.65 per cent).

Since February, gross rental yields have fallen across Darwin (6.47 per cent), Perth (4.16 per cent), Adelaide (3.58 per cent), Brisbane (3.55 per cent), Canberra (4.01 per cent), and Sydney (3.00 per cent), held steady in Melbourne (3.66 per cent) and expanded in Hobart (4.40 per cent).

Cotality Economist Kaytlin Ezzy said ongoing scarcity in ‘for rent’ listings, coupled with continued strength in rental demand has pushed the national vacancy rate to a new record low of 1.47 per cent — less than half the pre-Covid decade average of 3.3 per cent.

“Limited supply continues to be a major catalyst in rising rents, with the number of rental listings tracking approximately 25 per cent below the previous five-year average nationally for this time of year.

“Supply is particularly tight in the unit sector, especially in Sydney, which recorded both a new record low vacancy rate across its unit sector and broader dwelling rental market in September at 1.35 per cent and 1.64 per cent respectively.

“While investors have comprised an elevated portion of home lending over the past two years, this hasn’t translated into additional available rental stock,” she added.

Sydney renters suffer the worst

With rental stress deemed to be servicing rent equating to 30 per cent or more of household income, Sydneysiders are in a predicament.

Cotality’s Quarterly Rental Review shows the median rent in Sydney has now hit $807 per week, while the Real Estate Institute of NSW (REINSW) has calculated the average weekly household income to currently stand at $2,393.

That places the cost of rent at a stress-inducing 33.7 per cent of average household income.

This puts the average tenant in the unenviable position of experiencing mortgage stress but without having a mortgage, REINSW CEO Tim McKibbin said on Thursday (9 October).

“The rental crisis is apparent in the huge queues of hopeful tenants who line up each weekend in the hope of securing a home and it’s also apparent in the proportion of income tenants who are lucky enough to have a home must spend on rent.

“As both rents and house values continue to grow, fuelled by strong competition for a lack of properties, the hardship faced by renters looks set to increase and the prospects for those looking to buy become fewer, even if they only require a 5 per cent deposit.

“The Sydney rental market urgently needs a significant injection of more rental properties and this requires radical policy solutions that encourage the fast-tracked delivery of new housing supply and more residential investment,” Mr McKibbin said.

Rental transparency

While landlords are enjoying relatively strong rental returns, the continued high prices feed into the Consumer Price Index, and could contribute to high inflation that will translate into higher mortgage repayments.

Over the past five years, renters have struggled with the 43.8 per cent or $204 per week increase in rents nationally.

While Melbourne rents have remained steady over the past 12 months, not-for-profit thinktank Consumer Policy Research Centre (CPRC) said research it had conducted with Tenants Victoria showed four out of five rental providers interviewed had increased rent in the past two years, with an average increase of $48 per week.

Erin Turner, CEO of CPRC, said that in Victoria rent can only be increased once every 12 months — but there are no clear limits on how much.

“Rental increases can be based on assumptions, market scans, or even media reporting, leaving renters with uncertainty about their most important cost.

“When rent increases range anywhere from 3 per cent to 52 per cent with no transparent process, renters are left unable to predict the cost of their largest and most important budget item: their home.

“We did observe some good practice, where a third of the rental providers we talked with considered the wellbeing of people who rent when setting their prices.

“This good practice is something that the Victorian Government could build on to create more certain and clear pricing practices.”