House and unit rents have reached a new record high across the combined capitals.
Combined capital city house rents are up by 1.9% over the quarter, and 12.8% annually, while unit rents are up by 6.5% over the quarter, and 16.7% annually.
Combined capital unit rents recorded the highest quarterly and annual growth on record.
The country is seeing its longest stretch of continuous rental price growth as house rents rise for the sixth consecutive quarter and unit rents for the fifth.
Although the pace of quarterly growth has eased for houses, it accelerated for units.
Affordability constraints, the return of overseas migration and foreign students have helped shift demand to units, resulting in unit rents outpacing the quarterly growth of house rents.
House and unit rents across the combined capital continue to reach new record highs, according to Domain's Rent Report for the September quarter.
In fact, combined capital city house rents are up by 1.9% over the quarter, and 12.8% annually, while unit rents are up by 6.5% over the quarter, and 16.7% annually.
Unit rents are outpacing the quarterly growth of house rents due to affordability constraints, the return of overseas migration and foreign students, creating an increasingly competitive rental market.
Dr Nicola Powell, Chief of Research and Economics at Domain commented:
"The misalignment between supply and demand has resulted in increasing rents.
Demand pressures have been caused by a combination of factors, including the lack of affordable home ownership, changing household formation and the return of skilled migrants and international students.
On the supply side, we have seen delays in building completions due to supply chain issues, weaker investment activity and the conversion to short-term rentals as tourists return.
The consecutive run of interest rate hikes may have also pushed some landlords to pass on additional home loan costs, while successive falls in the vacancy rate and record-low rental listings are worsening pressure on tenants.
While it is still a very competitive market, on a positive note, we have seen suburbs report improved rent affordability, such as Macleod in Melbourne, Bellevue Hill and Collaroy in Sydney.
Gross rental yields for houses and units are also improving and are at their highest point on record, so it’s a good time for investors to enter the Australian rental market, which will help alleviate some supply pressure. "
In Sydney, its record-breaking streak continued over the September quarter with house rents jumping 4.8% over the quarter to a new record high of $650 a week, resulting in the steepest annual increase since 2009, at 14%.
Unit rents are back at a record high of $550 a week for the first time since 2018, after a 4.8% surge over the quarter.
While it has been the norm for house rents to be smashing new highs since the beginning of 2021, it is a stark change for unit rents, indicating that the affordability issues of renting a house have made budget-conscious tenants shift to units.
Sydney is now tied with Canberra as the most expensive city to rent a unit and remains the second most expensive city to rent a house.
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On the other hand, Melbourne’s rental market turnaround has almost fully recovered from the pandemic-induced supply surplus and lowered asking rents.
House rents increased 2.2% over the quarter to a new record high of$470 a week.
Despite this, Melbourne reigns as the most affordable capital city to rent a house with the value gap widening from the other capital cities.
Meanwhile, unit rents jumped 3.7% over the quarter to $425 a week, the sharpest annual increase since 2008, at 14.9%.
Overall, Melbourne remains a landlords’ market with available properties to rent dropping by 61% annually.
As for the other capital cities:
- House rents surged to a new record high of $550 a week in Brisbane. On record, they experienced the longest stretch of continuous unit rental price growth, with unit rents now at $460 a week. Brisbane is now the fourth most expensive city to rent a house for the first time in roughly six years.
- Adelaide continues to reign as the most competitive capital city to find a rental in Australia, due to a supply problem exacerbating the rental
- House rents are at a record high for Perth, 1% higher than last year, while unit rents jumped 5% over the quarter.
- In Canberra, the long-running streak of escalating rents came to an abrupt halt over the September quarter with house rents declining for the first time in just over two years, down 1.4%, and unit rents
- Hobart record highs remain, but rental growth has stalled, which could eventually lead to some relief for tenants.
- House and unit rents improved over the quarter for Darwin, but rental growth slows, as they continue to reign as the highest-yielding capital city for houses and units.
As house and unit rents continue to reach record highs, increased pressure is being put on tenants.
Dr Powell concluded:
"Unfortunately, there is no quick fix to alleviating conditions but there are solutions, if investor activity is encouraged, advance the build-to-rent sector and help tenants transition to homeowners.
If we encourage investors away from the short-term rental market and promote participation in social and affordable government housing programs through financial incentives, we will see some pressure ease in the rental market.
We also need to see greater participation from the government through an increase in rent assistance for low-income households, as this hasn’t risen in line with rents, and a stronger commitment to building more social housing.
Although the government has committed to building more housing, we need to see further progress and a change in land use and planning rules to allow for more homes to be built in middle-ring suburbs.
If some of these issues are addressed, this will no doubt have a positive impact on easing rental conditions.”
Source of graph, tables and commentary: Domain September 2022 Rental Report