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Rents on the rise as tenants remain trapped by affordability barrier

If you were to tell a tenant of today that rents were on the rise, their response would most likely be, “Tell me something I don’t know!”

For those stuck on the rental roundabout, it comes as no surprise that a recent RP Data report found house rents increased by 1.4% nationally (to an average $360 per week in the March quarter) and 2.7% in Australia’s capital cities over the past 12 months, as deteriorating home affordability pushes more into the rental market and causes a surge in demand.

This is particularly true for our capital cities, where house rents were about $20 a week more expensive than the national average. However, tenants in Sydney, Melbourne and Darwin gained a reprieve from rising rents during the March 2011 quarter, where house rents remained flat.

Brisbane rentals rose by 1.4%, Perth’s by 1.3% and Adelaide’s by 1.5% during the first three months of the year. While renters in Hobart and Canberra were the hardest hit with increases of 3% and 2% respectively.

Darwin remains the most expensive place to rent, with a median weekly rent of $520 and a median weekly rent for units of $430, while house rents in Canberra hit $500 per week.

Western Australia’s Pilbara mining region continues to top the list as Australia’s most expensive location for rental accommodation, with median weekly house rents advertised at a whopping $1,650 per week.

The reason tenants are forced to pay so much in the Pilbara, according to RP Data’s report analyst Cameron Kusher, is that the market is incredibly tight, “ and subsequently high prices are indicative of the isolated region’s strong demand for housing, mainly from resource sector workers and the insufficient supply of rental accommodation.”

Unfortunately, news for tenants is not very promising, with the likelihood of further increases in rental prices as demand continues to build due to limited development in most capital cities (apart from Melbourne CBD where a glut of apartment stock will soon come on line), as well as first home buyers being pushed out of the property market.

Kusher says, “The first homebuyers aren’t active so, if they’re not buying their own home, they’re either: a) living with their own parents; or b) they’re out there in rental market.”

“Although migration’s slowing, we’ve still got a growing population … so all the factors are suggesting to us that rental growth during 2011 will be quite strong.”

He explains that a fall in new home approvals and housing finance indicates this trend will continue for some time and adds, “People are just very conservative out there at the moment, first homebuyers are pretty much a non-event in the market at the moment, and that’s going to create more demand for those rental properties, particularly now that we’re seeing building approvals and dwelling commencements starting to taper off as well,”

“Limited new development during 2011 is likely to add to the upwards pressure on capital city rental rates,” said Kusher. “As a result, we expect capital city rental growth to revert to around five-year average levels, with inner city units and outer more affordable housing stock having the strongest prospects for rental growth.”

While most areas experienced rental hikes, RP Data recorded significant falls over the March quarter in outer Adelaide (-3.4%) and northern Queensland (-2.9%), while not surprisingly, the most substantial growth occurred in the Pilbara where rents soared by 8.2%.

Of course such growth is good news for investors, as increasing yields means some relief from rising interest rate pressures, with returns catching up to monthly mortgage repayments. But for those with assets in regional centres, the outlook isn’t so bright, with Kusher noting that tourism markets remain weak and economic drivers (apart from the mining industry) are limited.

Source: RP Data



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Michael is a director of Metropole Property Strategists who help their clients grow, protect and pass on their wealth through independent, unbiased property advice and advocacy. He's once again been voted Australia's leading property investment adviser and his opinions are regularly featured in the media. Visit Metropole.com.au


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