Rental market outlook

Much has been written – with little doubt more to come – about the Australian rental market of late.

EvictThe themes most discussed include the potential impact of eviction and rental increase bans; the fall in international student numbers and their effect on rental demand; the rise in unemployment (especially in those industry sectors which employ numerous renters) and its likely negative impact on rental need plus increasing new rental supply.

New rental supply is rising because some tenants are quitting their leases and are either moving back in with their parents or bunking in with friends or other relatives.

Some renters, if not many, will find this way of living to their liking, especially if the right accommodation arrangement is available.

Not all parents, on the other hand, would agree.

Also, many short-term accommodation spaces are now being offered for longer occupation.

Many are quick to say that weekly rents will fall, with some suggesting a bollocking.

A few – amazingly to me – are forecasting rental growth.

The usual talking heads are saying that the rental investment landscape has changed, and significantly, due to COVID-19.

Before I reply please review the two tables below.

Table 1: Three-bedroom detached houses – current asking rent + change

Location Asking rent Change
Last month Last year Three years
Sydney $655 -4.1% -4.3% -9.8%
Melbourne $530 -1.5% 0.3% 4.0%
Brisbane $430 -1.2% 1.0% 2.0%
Perth $410 -2.3% 0.4% 1.4%
Adelaide $400 -0.1% 3.7% 9.0%
Canberra $585 -1.0% 1.6% 10.7%
Hobart $430 -3.1% -1.0% 21.1%
Darwin $400 -0.1% -2.9% -11.4%
Newcastle $405 0.9% 1.8% 5.1%
Wollongong $440 0.5% 0.1% -2.0%
Sunshine Coast $460 -2.2% 1.0% 6.5%
Gold Coast $565 -4.3% -1.0% -1.4%
Australia $440 -0.7% 0.0% 3.5%
Matusik + SQM Research.  As a 4th May 2020.

Table 2: Two-bedroom apartments – current asking rent + change

Location Asking rent Change
Last month Last year Three years
Sydney $495 -2.0% -4.3% -8.2%
Melbourne $420 -2.2% -1.6% 4.0%
Brisbane $365 -0.5% 2.4% 3.5%
Perth $340 -1.5% 4.6% 4.2%
Adelaide $305 -0.5% 2.7% 5.8%
Canberra $490 0.9% 1.6% 12.2%
Hobart $380 -3.2% 4.4% 16.0%
Darwin $345 -0.4% -2.5% -11.4%
Newcastle $365 4.8% 6.1% 8.5%
Wollongong $390 1.8% 2.2% 2.4%
Sunshine Coast $410 1.8% 10.0% 14.4%
Gold Coast $460 -2.8% 2.2% 7.5%
Australia $365 0.0% -1.9% 4.0%
Matusik + SQM Research.  As a 4th May 2020.

Table 1 outlines the current average weekly asking rent and the change in that rental amount over the last month (as at early May, so relevant as it includes the first month of the Australian lock-down restrictions); last year and past three-year period for three-bedroom detached houses.

Table 2 provides that same detail for two-bedroom apartments.

Rent These tables tell me – outside of a few select areas – that weekly rents haven’t changed that much over recent times.

The rapid rise in weekly rents in Hobart and on the Sunshine Coast are associated with economic growth, whilst in Adelaide and Canberra rental growth over the past three-year period was mostly due to tight rental supply.

Rents have actually been falling in Sydney, due to affordability constraints plus a lift in supply, specifically evident when including granny flats in the supply equation.

A key message here is that there has been little rental growth of late and that the future outlook for such growth is slim.

Slimmer now, maybe, because of COVID-19 but it was always looking slim, nonetheless.

The reasons behind this leaner rental future are limited wage growth (actually wages are falling in real terms and when measured against the inflation rate of household necessities rather than luxury items or irregular purchases) coupled with an increase in the proportion of lower paying jobs in our recent, and importantly, projected future employment mix.

Many of these lower paying jobs are held by the rental market.

A second message is that the number of households renting has been rising steadily over the past two decades.

The trends above, coupled with low housing affordability, lacklustre dwelling price growth, deflation and our changing demographic mix is likely to see renters make up 40% of the Australian housing market by our next Census in 2021.

That proportion could be higher because of COVID-19 but it is already growing and set to potentially cross the halfway mark sometime within the next two decades.

So, if you are a residential investor there are two solutions here:

Khestates Blog How To Increase Your Rental Yields

  1. either provide what the rental market really wants and will pay a premium for, and/or
  1. provide housing stock that really enables tenants to share accommodation.

For mine, nothing much has changed with regards to the rental market’s future shape.

It might just arrive, now, a bit sooner than expected.

In short, multiple rental occupants per title is the new black and the number of households renting will continue to rise.

Both trends even more so post COVID-19.

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Michael is director of independent property advisory Matusik Property Insights. He is independent, perceptive and to the point; has helped over 550 new residential developments come to fruition and writes his insightful Matusik Missive


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