Melbourne rental increases only moderate compared to Sydney and yields have stabilised

Melbourne renters have seen only moderate rises in rents over the past year, especially when compared to Sydney. At the same time investors have seen static yields but potentially benefited from improved capital growth.

Over the past year the median weekly rent for a house in Melbourne has risen by $10 and by $8 for units. Currently the median rent for a house is $437 per week and $389 for a unit.

This compares to a rise of $23 per week in Sydney to $582 for a house and an $18 rise for units to $509.

It is certainly less expensive to rent in Melbourne than in Sydney and renters have been faced with more moderate increases.

In part, the lower weekly rent explains why rental yields are lower in Melbourne than in Sydney. The yield for a house in Melbourne was 3.4% in December last year and 4.2% for units. In Sydney, the comparable figure was 3.9 and 4.7% respectively.

Over the past two years, yields have not changed substantially for houses in Melbourne with a change from 3.5% 3.4% recorded. Property owners over that time have benefited from capital growth.

Units, which have a higher yield, have recorded a similar change, from 4.3 to 4.2%.

It is interesting to note that over the longer term, yields for both houses and units in Melbourne have stabilised at a lower level. From 2003 to 2005 investors benefited from yields of around 4.4% for houses and 4.9% for units.

Robert Larocca is Victorian housing market specialist for RP Data.