Rental Growth Losing Pace

New evidence suggests that rental growth in many parts the country is slowing. Although landlords continue to wield control of the rental market, according to the new weekly asking rents data series released last week by SQM Research, this control is weaning.

Data from the index reveals that on a national level, owners of investment properties have steadily increased their rental asking prices in some capital cities over the past 12 months, however this increase has been slower in comparison to rises experienced in 2010 and early 2011- with the capital city average asking prices increasing 0.1% year-on-year for houses and 2.1% for units, compared to the 12.3% for houses and 10.3% for units over the past three years.

SQM Research’s new index – The Weekly Rents Index, which gages the sentiment of landlords by recording their rental asking prices on a weekly basis, has revealed (As seen in the chart above) that rental yields in Australia have lost pace in recent months. This is most likely attributed to the latest recovery in the housing market, prompting renters to exit the rental market in favour of purchasing property – thus causing vacancy rates to loosen in many localities.

Although the effects of this have to date been somewhat modest, it is the expectation of SQM Research that as the state of housing market continues to improve, the ramifications of this on the rental market will become increasingly obvious.

For example Canberra’s asking rents have appeared to decline over the past 12 months on all fronts, whilst Perth has experienced sharp increases over the same period. This is somewhat expected of Perth as the commodities boom continues to encourage employees to migrate temporarily in this part of the country. With these individuals preferring to rent rather than purchase as their time spend in the area is momentary, vacancy rates have been pushed down significantly – currently standing at 0.8% for Perth – a figure well below what SQM Research considers to be equilibrium (3%).

As a result of this, it is easy to see why Perth has recorded rises of 7.9% for houses and 11.0% for units over the past 12 months.

Darwin although highly seasonal, tells a similar story, recently recording vacancy rates as low as 0.4% (July 2012) and currently sitting at 1.4%. It becomes evident how closely linked low vacancy rates are to rental growth, with Darwin posting a 19.8% yearly increase in asking rents for houses and a 14.4% yearly increase in asking rents for units.  

Louis Christopher, Managing Director of SQM Research says “Our new rents index provides a contrasting insight into the Australian rental market. On one hand there is Perth and Darwin recording very solid rental increases right across the localities of both cities. And then on another, we note what seems to be a slowdown taking place in the Sydney rental market. And then there is Melbourne where within that city there are clear pockets of oversupply of rental property and pockets of undersupply. This illustrate by far that there are markets within markets. Going forward, local conditions are set to dominate rental conditions for 2013 with no real large influence from the macro-economic tides other than a slow to moderate movements of renters tuning themselves into first home buyers.”