Rental Markets Tighten Over June — Rents Rising

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Capital city rental markets continued to tighten over June with vacancy rates remaining at generally low levels — and still falling.

Rental PriceLow vacancy rates are predictably translating into higher rents with current trends indicating the little prospect of easing over the foreseeable future.

House rents have increased sharply over the past year in Brisbane, Adelaide, and Perth although Sydney rents have steadied with Melbourne down by 4.4%.

Melbourne continues to record the highest house vacancy rate of all the capitals at 2.3% although a tightening trend has emerged over recent months.

Shortages of houses for rent and higher rents in Brisbane, Adelaide, and Perth reflect monthly vacancy rates at or below 1% in all those capitals.

Gross rental yields for houses continue to fall as prices surge, although offset by rental increases in the smaller capitals.

Overall total gross investment returns inclusive of capital growth and rental income remain elevated as a result of booming prices growth.

Chart1

Capital city unit rental markets are also tightening with vacancy rate trends continuing to fall over June.

Although unit vacancy rates are higher than houses, Brisbane, Adelaide, and Perth have recorded higher rents over the year — with Perth the standout rising by 10.7%.

High unit vacancy rates in Melbourne and Sydney and sharply lower annual rents reflect continued elevated vacancies in local inner-suburban and CBD markets, although vacancies in these areas have fallen sharply from record levels over the past month.

Again, reflecting recent strong prices growth, gross yields for units continue to decline — particularly in Melbourne and Sydney where falls in rents have added to lower yields.

However, yields in Brisbane, Adelaide, and Perth remain encouraging for investors as higher rents have offset higher prices.

Similar to houses, total annual investment returns for units remain elevated, driven by recent strong prices growth.

Chart2

The clear prospect of ongoing shortages of vacant rental homes will continue to place upward pressure on rents that in some capitals are increasing at record-level annual rates.

Although current covid restrictions may act to reduce demand for rentals in the shorter term, the easing of restrictions and re-opening of borders will return markets to their current generally undersupplied state.

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About

Dr Andrew Wilson, Chief Economist of www.MyHousingMarket.com.au is widely regarded as Australia’s leading property economist.


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