Capital city rental growth lowest on record: CoreLogic RP Data

Weekly rents across Australia’s capital cities rose by just 0.3% over the 12 months to November-end, the lowest annual growth rate on record, according to the latest CoreLogic RP Data monthly rental review.

Sydney and Melbourne were the only cities where rental rates rose at least 2% for the year.

Rates fell over the year in Brisbane, Perth and Darwin, while the remaining capitals have seen rents rise by less than 1.5% over the year.

The combined capital city rental rates are $486/week for houses $464/week for units, according to the data.

“It is anticipated that the rate of rental growth will continue to slow over the coming months due to increased supply of housing and rental stock coupled with slower migration rates which has reduced rental demand,” CoreLogic RP Data research analyst Cameron Kusher said.

Dwelling rental rates across the combined capital cities were recorded at $483 per week, an increase of just 0.2% over the first 11 months of the year while over the past 12 months, they have risen by a record low 0.3%.

“Today’s results point to a broad trend of weakening rental growth, particularly throughout this year. With less than one month to go before year's end, it is apparent that rental growth will be very soft over 2015," Kusher said.

“The construction boom across the capital cities, coupled with slowing population growth, low mortgage rates and the recent heightened level of activity from investors who add to the pool of rental stock are the major contributing factors to the slowing rental growth.

“Sydney and Melbourne, which have seen the largest ramp up in new housing supply and investor activity over recent year, continued to record rental rises over the past year.

"However, each city is seeing a slowing in the pace of rental growth relative to 12 months ago.

He said the increase in investment stock gives landlords little scope to lift rental rates, while the low mortgage rate environment offers little incentive to push yields higher.

Looking across the individual capital cities, over the past year, Sydney and Melbourne have recorded the greatest increases in weekly rents, albeit at low levels compared with the pace of capital gains, while rents have fallen in Brisbane, Perth and Darwin.

Over the past three months rents are lower in Brisbane, Adelaide, Perth and Darwin, are unchanged in Hobart and have increased in Sydney, Melbourne and Canberra.

Over the past month, house rents were unchanged while unit rents rose 0.2%. For the three-month period, house rents fell -0.2% compared to a 0.4% rise in unit rents.

Demand for units , while still weak, is holding up better than rental demand for houses, the data shows.

Over the past year, house rents have increased by 0.1%, while units have recorded a much greater 1.7% annual rise.

Annual rental growth has slowed over the month but has reached a new record low level. Across each capital city, the current annual rate of rental growth is lower than the decade average, highlighting the weak rental growth conditions compared with the historical trend.

Canberra is the only city where the annual change in rent over the past year has been greater than growth a year ago.

The current building boom and recent record high levels of investment purchasing is causing oversupply at a time where the rate of population growth is slowing.

The slowing population growth is continuing to hit the rental market demand and contributed to a record low rate of rental growth.

The report said growth in rental rates is expected to slow even further over the coming months, and possibly rental rates will start to fall on an annual basis over the coming months.

The large pipeline of residential construction activity as well as high levels of investment demand (albeit slowing) means that people choosing to rent are likely to continue to have more accommodation choices and landlords limited scope to increase rents.

Capital city rents are increasing at their slowest annual pace on record, however, a decline in home values over the month has halted the decline in gross rental yields.

At a combined capital city level, gross rental yields were at 3.4 percent for houses in November 2015 and at 4.3 percent for units. Combined capital city house and unit rental yields are currently both at record lows.

A year earlier, gross rental yields were recorded at 3.7% for houses and 4.5% for units across the combined capitals.

The report says that the sluggish rental market may result in a further compression of yields over the coming months.

From an investment perspective it means that capital growth, which is slowing, is going to remain a much more important factor for a return from an investment.

Gross rental yields are lowest for houses in Melbourne (3%) and highest in Hobart (5.4%).

Gross unit yields are lowest in Sydney at 4.1% and highest in Darwin at 5.5%.

Sydney unit yields are currently at a record low. Gross yields have edged slightly higher in Sydney, Melbourne and Canberra after sitting at record lows in October.

Across every capital city except for Hobart, house rental yields are lower now than they were at the same time last year. The general decline in yields is reflective of sluggish rental increases for houses and stronger value growth.

The unit market shows different trends to the detached housing market largely due to the weaker value growth conditions for units and the fact that rental growth is a little stronger than it is for houses. Yields are higher than a year ago in Canberra and unchanged in Melbourne and Brisbane while elsewhere yields have softened over the past year.