Renting in Australia is getting cheaper and could continue to do so, according to a new report from Core Logic.
The monthly Rent Review found rental prices dropped 0.3% in August across the capital cities, with the combined capital city median weekly rent now $481 a week. This is the lowest it has been since November 2014 and represents a 0.5% drop in the past 12 months.
The report also found the gap between houses and units is narrowing, with the median rental prices for houses at $484 a week while the median for units is $466. Over the past year, house rents have fallen by 0.8% while unit rents have increased by 0.7%.
Cameron Kusher, research analyst at Core Logic, believes we’re unlikely to see an overall increase in rental prices any time soon.
“As long as wages growth continues to stagnate, coupled with historically high levels of new dwelling construction and slowing population growth, landlords won’t have much scope to increase rents,” he says.
“On the flipside, renters are now in a much better position to negotiate.”
Across the capitals
Despite the fall in rents across the combined capital cities, not all are seeing decreases. Not only have rents gone up in Hobart (up 6.8%), Melbourne (2.9%) and Canberra (2.6%) over the past year, but they’ve also increased at a faster rate in those cities than the previous 12 months.
On the other hand, Darwin (-14.1%) and Perth (-9.4%) recorded sharp rental decreases in the last year, dragging the average amongst the capitals down. Brisbane (-1.1%) and Adelaide (-0.3%) also saw decreases, while average Sydney rents stayed unchanged.
Hobart's strong performance means it's now almost no longer the most affordable capital in which to rent. The average weekly rent there is now $359, only a few dollars behind Adelaide ($364).
Rental yields yielding?
With home values across the capitals generally up and rents down overall, CoreLogic predicts capital growth will likely become a more important factor for property investors than rental returns. Investors may also begin looking beyond the two major property markets of Sydney and Melbourne for more affordable options.
Gross rental yields for houses are at record lows in Sydney (2.8%), Melbourne (2.8%) and Canberra (3.9%). Gross rental yields for units are also at record lows in Hobart (5.4%) and Sydney (3.9%), although Hobart continues to offer the highest yields of all capitals for both houses and units.
“With rental rates falling over the past year and expectation these falls will continue, there is likely to a further compression of yields over the coming months however, this will be dependent on growth in home values as well as the direction of rental rates,” the report states.