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Rents rise at fastest rate in 14 years, but investors still face challenges

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Rents are on an upward trajectory in most locations in Australia, but are moving faster in some cities than others. Photo: Shutterstock

Rents rise at fastest rate in 14 years, but investors still face challenges

Rents rose at their fastest rate in more than a decade in the first three months of this year, with the rate of growth in capital city markets starting to catch up to regional areas.

Rents rose at their fastest rate in more than a decade in the first three months of this year, with the rate of growth in capital city markets starting to catch up to regional areas.

However, the data indicated significant challenges remain for residential investors in Sydney and Melbourne, with the rate of rental growth not yet surpassing the rise in home values, putting a squeeze on rental yields.

CoreLogic’s latest quarterly rental review showed national rental rates rose by 3.2 per cent in the first quarter of 2021, the biggest three-month rise since May 2007.

After posting just 0.8 per cent growth in the December quarter, capital city rents rose by 2.9 per cent, CoreLogic said, an indication a rebound may be under way.

Darwin was the standout performer with a 7.7 per cent quarterly rise in rents, while Hobart rents were up 6.1 per cent.

The market recovery continued in Perth, with rents up 5.9 per cent for the quarter and 14.2 per cent year on year.

Brisbane rents were up 3 per cent for the quarter, Adelaide’s grew by 2.9 per cent, Sydney’s rose by 2.9 per cent, while Melbourne rents followed the pack with 1 per cent quarterly growth.

CoreLogic head of research Tim Lawless said while rents were rising at their fastest pace from 2007, the overall figure masked the diversity of rental conditions across the country.

“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 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.”

Mr Lawless said the data also illustrated the challenges of current market conditions for residential investors, particularly in Sydney and Melbourne, where rental yields at the end of March sunk to 2.74 per cent and 2.92 per cent, respectively.

“Although rents are generally rising, housing values have been rising at a faster rate which has seen rental yields compress across most of the capital cities,” Mr Lawless said.

“The exceptions are Perth and Darwin where rents have risen at a faster pace than housing values, driving a rise in yields. 

“The opposite is true in Sydney and Melbourne where rental yields are plumbing new record lows.

“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.”

In regional areas, rents continued to climb solidly, at 4.1 per cent for the quarter and 8.6 per cent year-on-year.

Strength in regional unit rental markets helped to contribute to quarterly rental growth of 2.5 per cent for multi-residential dwellings over the past three months.

“Interestingly, the latest acceleration in unit rents is most apparent across regional markets,” Mr Lawless said.

“Contrary to the capital cities, the regional unit market is showing stronger growth in rents than houses over the latest quarter.

“Regional units recorded a 4.8 per cent quarterly uplift in rents compared to a 4.0 per cent rise in house rents.”

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