Domain Group misses the obvious point with rents: Terry Ryder

Domain Group rather missed the point with its media release on the latest figures for capital city rents.

The headline it chose to give it, “Rents remain at record highs despite increased supply”, should have been “Rents refuse to rise despite alleged chronic housing shortage”.

The headline that accompanied rental figures from CoreLogic RP Data, “Significant slowdown in rental growth set to continue”, was much closer to the mark.

Meanwhile, Louis Christopher of SQM Research also released figures on rents, noting that asking rents have fallen in several of the capital cities.

Domain Group, in seeking to pander to media’s obsession with the notion of a real estate boom, missed the obvious point that the two other sources noticed: capital city rents continue to stagnate and haven’t delivered meaningful growth for years.

Examining 16 rental markets (eight capital cities, each with a house market and a unit market), Domain Group data shows that median asking rents have fallen in five markets in the past year. Five others have recorded no change. Three others recorded annual growth around 2%.

That means 13 of the 16 capital city rental markets are dormant or declining. The only city with good rental growth in Hobart (up 6.5% for houses and 12% for units, apparently), while the median asking rent for Sydney houses is up 4%.

SQM Research records falling asking rents in Perth, Canberra and in particular Darwin, which has dropped 13.7% for houses and 4.7% for units for the past 12 months. It says that Adelaide, Hobart and Sydney have recorded modest rises for the same period.

 “Overall, national rental growth is now below annual CPI,” Christopher says.

“The national rental market continues to slow. It is coming up in our vacancy series and in our asking rents, which are now rising at a slower rate than general inflation. With the east coast market still being driven upwards, largely by investor demand, it does make me wonder if investors are aware that it is increasingly a tenants’ market out there.”

CoreLogic RP Data tends to agree with that assessment. Its latest report says: “Rental growth across most of Australia’s capital cities remains sluggish.”

It records overall rental rates in the capital cities during March that were just 1.2% higher than the year before. Similar to the other sources, it reports big declines in rents in Perth and Darwin. It also finds the largest increases in Hobart.

And it says Sydney (up 2%) and Melbourne (up 1,4%) were the only two capital cities to record rental growth increases in unit markets, though both were minor rises.

Research analyst Cameron Kusher says it’s no surprise unit growth is tracking lower than houses, given the high level of investor activity in capital city unit markets.

The key point is this: the latest rental figures are merely a continuation of a pattern that has spanned years.

A year ago, in April 2014, I wrote on Property Observer: “Can anyone explain the absence of rental growth in our major markets? Are we not suffering from a housing shortage crisis, with an accumulated under-supply of hundreds of thousands of dwellings?

“Can the economists who speak constantly of this dwelling shortage explain how three of our eight capital cities recorded declines in house rentals in the March Quarter, while four others recorded no growth?”

You have to go back to 2012 and early 2013, when both Perth and Darwin had good rental growth driven by the (then) still-booming resources sector, to find increases in city rentals. But even then, there was little or no rental growth outside the mining-pumped cities.

Kusher says: “With new housing supply increasing and investor purchasing at record highs, we have seen a significant slowdown in the rate of rental growth over the past couple of years and we expect this trend to continue over the coming year.”

Therein lies the key point. In contrast to the developer’s lobby relentless party line about a “chronic housing shortage crisis”, the reality is that supply has increased markedly in recent years and the lack of rental growth in the major cities confirms there is no shortage overall.

Note also that Sydney is the only capital city delivering significant price growth.

TERRY RYDER is the founder of hotspotting.com.au. You can email him or follow him on Twitter.