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Quarterly unit rent prices continued on their upward trajectory in all capital cities during the fourth quarter of 2021, while houses hit record highs in all but Perth and Darwin, new research has found.
Figures out of the December quarter reported by Domain indicate that combined capital city house rents were up by 3.4 per cent over the quarter, making 2021’s annual growth of 7.4 per cent the highest since 2009.
And apartment rentals across the country marked their first annual increase since September 2018 – growing by 2.5 per cent over the year.
Demand for space increases desire for houses
The record level of difference between apartment and unit rental prices increased, with houses bringing in $499 per week and units seeing an average income for owners of $436.
Dr Nicola Powell, Domain’s chief of economics and research, said that demand for larger spaces had caused house rents to race past unit rent growth, with landlords hiking house prices three times faster than units over the past year.
“In some cities, units with more bedrooms also continue to have rent price growth, this reflects the desirability for space from those able to work from home, but also provides an insight into demand demographics,” Dr Powell said.
Factors figuring into 2022
Overall, the quarter reported upward momentum across almost all cities and segments, with few disruptions in sight.
“Rental affordability is a growing concern, particularly for lower-income households,” Dr Powell asserted.
She noted that the months ahead might bring a bit of a rollercoaster, with a number of factors set to exert pressure on the rental market.
“Weaker investment activity did interrupt the flow of rental properties, however investors are back with the share of home loan values for investment on the rise. This will boost supply and is likely to have helped to slow rental price growth over the December quarter,” she explained.
But changing immigration conditions will soon make its impact felt.
“Competition to secure a rental will escalate once borders reopen and international students, new migrants, and expats action a relocation. This is likely to be further strained by demand from COVID-19 escapees as some return from sea and tree change areas which may result in further increase in rental prices,” she said.
Yields to stay elevated
Adelaide and Hobart renters will particularly feel the heat if things continue to tighten. The cities’ vacancy rates are the lowest in the country, at 0.4 per cent and 0.3 per cent, respectively. That’s compared to a 2.6 per cent vacancy rate in Sydney, 3.2 per cent in Melbourne, 1.3 per cent in Brisbane and Darwin, and 1 per cent in the ACT.
Perth is also squeezed, at 0.6 per cent, but for the first time on record, houses in the West Australian capital offer the highest gross rental yields at 5.2 per cent.
“As heightened demand for rentals in Perth outstripped supply due to returning expats and a steady inward flow of residents from other states and territories.
“Interestingly for Perth, rent rises have been fairly uniform across property types and bedroom number, bucking trends seen in other cities of a skew in greater rent growth for houses and larger rentals. The shift to rapid rent increases places a compromise in property type and size at the forefront,” Dr Powell said.
But though Perth might be ahead of the pack, yields were high across the cities, particularly for units.
“Rising unit rents have kept gross yields higher across capital cities compared to house yields, providing better investment opportunities for potential investors seeking greater cash-flow. Rental supply remains short in many areas providing little choice and strong grounds for further rental price hikes. Investors are returning to the rental property market to take advantage of these trends – this should help to slow down rent growth,” she said.
ABOUT THE AUTHOR
Juliet Helmke
Based in Sydney, Juliet Helmke has a broad range of reporting and editorial experience across the areas of business, technology, entertainment and the arts. She was formerly Senior Editor at The New York Observer.
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