Rising tide of unit rents closes gap with houses in major capitals

In the past year, the rental market in Australia's three major capital cities—Greater Sydney, Greater Melbourne, and Greater Brisbane—has experienced a narrowing gap between house and unit median rents.

This trend offers critical insights into the evolving dynamics of the housing market, with significant implications for both renters and investors.

Rental landscape of major capital cities

Greater Sydney's rental landscape has seen a consistent rise in house rents from $650 in February 2023 to $700 by February 2024, reflecting a steady increase.

However, the unit rents in the same period have surged more significantly, from $540 to $650, indicating a higher rate of growth for units compared to houses.

This suggests a strong demand for units, possibly due to affordability concerns or a shift in renter preferences towards more compact, centrally located living spaces.

In Greater Melbourne, the increase in house rents from $460 to $530 over the year is paralleled by a substantial rise in unit rents from $430 to $520.

This relatively high growth rate for units could be attributed to Melbourne's urban expansion and the increasing appeal of units for individuals seeking affordable housing options close to the city's amenities and employment opportunities.

Greater Brisbane presents a similar narrative, with house rents rising from $530 to $580 and unit rents from $470 to $550 within the same timeframe.

Brisbane's growing status as a desirable destination for both living and investment might be fuelling this trend, alongside its comparative affordability in the context of Australia's larger capital cities.

The narrowing gap between house and unit rents across these cities underscores a shift towards higher-density living options, possibly driven by urbanisation, the quest for convenience, and the evolving lifestyle aspirations of Australians.

For renters, this trend implies a diminishing price difference between choosing a unit over a house, potentially influencing decisions based on budget, location preferences, and lifestyle needs.

For investors, these trends highlight the growing attractiveness of units as an investment option, particularly in inner-city areas where demand is robust.

The higher rate of rent increase for units suggests a potentially higher yield in the short to medium term, although this must be balanced against factors such as strata fees and the supply of new unit developments.

In summary, the evolving rental market dynamics in Sydney, Melbourne, and Brisbane reflect broader shifts in housing preferences and economic conditions.

Intriguing phenomenon in rental accommodation

These trends are critical for stakeholders to monitor, as they influence strategic decisions in property investment, urban planning, and housing policy.

In the dynamic landscape of Australia's property market, an intriguing phenomenon has emerged, particularly in the arena of rental accommodation.

A detailed examination of Suburb Areas (SA2s) nationally reveals a significant shift in the gap between unit and house rent prices, offering a nuanced perspective on the evolving preferences and financial realities of Australian residents.

Notably, Mosman Park - Peppermint Grove leads the list, where the gap has decreased by $200 in the past 12 months, shifting from a $650 difference to $450.

This area exemplifies the trend where unit rents are increasing at a faster pace than house rents, in this case, with unit rents surging by an impressive 36%, despite house rents declining by 8%.

This indicates a strong demand for units, possibly driven by a preference for more affordable, flexible living spaces in premium locales.

Another compelling example is Peregian Springs, where the gap narrowed by $160, demonstrating a modest 1% increase in house rents compared to a robust 32% hike in unit rents.

Such patterns suggest that units in certain areas are becoming increasingly desirable, either due to lifestyle preferences, the appeal of newer unit developments, or a search for value in a tight market.

Further down the list, Bentleigh East - North and Turramurra reflect a complex interplay of market forces.

For instance, Bentleigh East-North saw a remarkable turnaround, where units, previously renting for $60 less than houses, are now experiencing a combined gap change of $135 in favour of units, coupled with substantial rent increases for both houses (10%) and units (36%).

This trend is not uniform across the board; it varies significantly by region, reflecting local economic conditions, demographic shifts, and changes in housing supply.

For example, areas like Robina-West and Biggera Waters show a decrease in house rent prices alongside modest increases in unit rents, suggesting a regional recalibration of housing demand and affordability.

The phenomenon of narrowing rent price gaps between houses and units points to broader shifts in the Australian housing market.

Factors such as urbanisation, the desire for proximity to amenities and employment centres, and the evolving preferences of younger renters favouring lower maintenance and more lifestyle-oriented living spaces, are likely contributing to this trend.

As the property market continues to evolve, these shifts underscore the importance of nuanced, data-driven insights for investors, policymakers, and residents alike.

They highlight the need for a flexible, responsive housing sector that can adapt to changing demands, ensuring that both the rental and broader housing markets remain vibrant and accessible to a diverse range of Australians.

About Mike Mortlock Mike Mortlock is a Tax Depreciation expert, Quantity Surveyor and Managing Director of MCG Quantity Surveyors. He is a regular property commentator having been featured in the Financial Review and Sky Business. MCG Specialise in Tax Depreciation Schedules and Construction Cost Estimating for investors. You can visit them at www.mcgqs.com.au