While the real estate headlines are excitedly focusing on booming Sydney property prices let’s instead take a look at what is happening to rents across Australia.
It is rare to see rents and dwelling prices firing at the same time or rising in concert strongly, and sure enough the June quarter inflation (CPI) data released this week revealed the trend in rental growth to be easing back across every Australian capital city.
The long run inflation data shows how on a national basis rents have never fallen in Australia.
Rents did fall slightly for several consecutive quarters in Perth (cumulatively by 8 percent) and Melbourne (3%) following the onset of the early 1990s recession.
And around the turn of the century rents fell by 8 percent over a period of more than a year in volatile Darwin, before then booming outrageously from 2005 to 2010 to levels that could not have been predicted by even the most wildly bullish of analysts.
The above instances aside, nationally rents have risen relentlessly for more than 40 years:
Zooming in the chart to cover the last five years in the major capital cities shows that rental growth is presently strongest in Sydney (+3.0% y/y) and Perth (+2.9%), but both cities have eased back after a strong half decade:
Rental growth is now quite weak in Melbourne (+1.7%) as an oversupply of certain property types begins to bite.
The fundamentals of the Melbourne property market now appear relatively soft, but the market environment needs a trigger to expose them such as rising unemployment or higher interest rates.
According to the CPI data, Brisbane and Adelaide have recorded year-on-year rental growth of +2.2% and +2.9% respectively.
However, it is abundantly clear from the above chart that the trend is now down in all cases.
For the purposes of completeness, below is what has been happening of late in the other capital cities:
Darwin continues to march to its own drum to some extent with some exceptionally strong rental growth over the past ten years due to its incredibly tight real estate market.
As at June 2014 Darwin’s rents are still tracking at +4.8% y/y, although even in the Top End the trend is quite clearly now down.
Rental growth has been weak and has hit a prolonged plateau in Hobart (+1.2%), while Canberra is the most troubled of Australia’s capital city housing markets.
With the labour market in mild disarray rents are sliding into negative territory in Canberra following on from negative house price growth over the past 12 months.
The Australian Capital Territory is the one location is been far better to be a tenant than a landlord over the last year.
In summary, rental growth is easing back or has eased back across all eight capital cities, but the compensating good news for property owners is that with fixed mortgage rates being slashed independently by the major banks, house prices are rising practically everywhere.
In Sydney’s case, the market continues to boom, with house prices up by 17 percent in the last year and more than 25 percent since the market’s most recent trough in 2012.
Spring will soon enough be upon us again so it will be interesting to see how much of that price momentum can be maintained into the traditionally more active time of year.