Key takeaways
The national rental index was up 2.8% in the March quarter, the fastest quarterly pace of rental growth since the three months ending May 2022 (2.9%).
Unit rents are continuing to rise faster than house rents across the combined capitals, up 2.9% and 2.7% respectively in the March quarter.
Melbourne has recorded one of the most significant lifts in gross rental yields, from 2.76% two years ago to reach 3.57% in March 2024, the highest gross yield since March 2015.
The national rental index was up 2.8% in the March quarter, the fastest quarterly pace of rental growth since the three months ending May 2022 (2.9%).
Rental conditions do show some seasonal strength through the first quarter of the year, which helps to explain some of the renewed upward pressure on rents.
However, the annual trend in rental growth has generally been moving higher since October last year, implying the reacceleration in rental growth is more than a seasonal inflection.
Unit rents are continuing to rise faster than house rents across the combined capitals, up 2.9% and 2.7% respectively in the March quarter.
However, we are seeing a gradual narrowing of the gap between house and unit rental growth trends.
With rents once again rising faster than housing values, there has been some renewed upward pressure on rental yields.
At 3.75%, the gross rental yield nationally hasn’t been this high since October 2019.
Melbourne has recorded one of the most significant lifts in gross rental yields, from 2.76% two years ago to reach 3.57% in March 2024, the highest gross yield since March 2015.
Such a substantial jump in the gross rental yield can be attributed to a -4.1% fall in Melbourne dwelling values over the past two years while rents have surged 21.1% higher.
A rise in rental yields alongside an expectation that housing values could rise and rental markets remain tight for an extended period of time is likely to be seen as an attractive opportunity for property investors.
However, with investor mortgage rates averaging in the mid-6 % range, it’s likely that most investors who are new to the market will be experiencing a cash flow loss unless they are able to stump up a sizeable deposit.
Based on housing finance data, investors have recorded the most substantial lift in activity over the 12 months ending January 2024, with the value of lending up 18.5% compared with a 3.4% increase in owner-occupier lending.
Outlook...
Overall, it looks as though housing markets are continuing to traverse the high-interest rate and high cost of living environment better than most would have expected.
Values and rents are recording broad-based rises, albeit with significant diversity across the capitals and regional markets.
The outlook for housing values remains positive amid a growing expectation that interest rates will start to fall later this year, providing a boost to borrowing capacity and consumer sentiment.
