Rental growth at two-decade low: Pete Wargent

Rental growth at two-decade low: Pete Wargent
Pete WargentDecember 17, 2020

Rental growth was flat at just 0.6 percent over the year to March 2017, according to the ABS inflation figures.

This is the equal lowest annual percentage growth since 1994, largely reflecting the new supply of apartments hitting the capital cities on the east coast.

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The national figure obscures contrasting fortunes around the capital cities.
 
Sydney recorded annual growth in its rental CPI of 2.5 percent. 
 
In Melbourne rental price growth has been picking up over the past five quarters, although only to 1.7 percent year-on-year according to the ABS series (there has been considerably stronger growth in asking prices). 
 
Hobart recorded the fastest annual growth of the capital cities at 4.2 percent. 
 
In Canberra there has not been much to see in aggregate, but anecdotally there is a view that the annual land tax has turned investors away from houses leading to a shortage of detached rental stock (though as in most capitals there is clearly no shortage of new apartments, which has compensated tenants for now).
 
In Darwin rents declined by 7.4 percent year-on-year, although this actually represents an improvement on the preceding quarter's drop.
 
And in Perth, rents were down by 7.3 percent year-om-year, having now dropped by 12.1 percent from their peak. 
 


In Brisbane nominal rents remain positive, but there's no doubt that inner city apartments rents are set for a tumble, as evidenced by the "for lease" banners strewn around the inner city.
 
This from yesterday...


Benign inflation
 
The above figures feed in to the benign inflation picture.
 
Moreover, while dwelling construction is expected to remain strong for some time in Sydney, new apartment projects are now being shelved or scrapped practically by the week in Melbourne and Brisbane.
 
As each new Brisbane apartment project completes this will leave a small hole in the economy, which cumulatively will act as a drag on growth.
 
For this reason the government will be looking to loosen the purse strings to pave the way for infrastructure projects to plug the hole, which can be achieved through borrowing without unnecessarily crippling the budget.
 
A final point, the Sydney market has seen rents outpace CPI by a factor of two over the past ten years to rise by 56 percent.
 


 
This reflects that Sydney's construction boom was still addressing an inherent undersupply until recently, but stay alert because the balance is about to swing sharply in favour of tenants over the next couple of years. 
 

PETE WARGENT is the co-founder of AllenWargent property buyers (London, Sydney) and a best-selling author and blogger.

His latest book is Four Green Houses and a Red Hotel.

Pete Wargent

Pete Wargent is the co-founder of BuyersBuyers.com.au, offering affordable homebuying assistance to all Australians, and a best-selling author and blogger.

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