Ray of hope despite record rental costs

Tenants across the country have been given a sliver of hope that a staggering rise in rental costs is approaching a peak.

An inaccessible purchasing market, low housing stock and landlords passing on higher borrowing costs to tenants means renting has never been more expensive for Australians than it is right now, with the latest Domain Rent Report showing costs across the capital cities at new highs in the three months to June 30.

But while some rents are likely to edge even higher in the coming months, Domain reports the overall pace of growth has slowed down.

What’s more, the national rental vacancy rate has stabilised – albeit at a 16-year low of 1 per cent.

These facts may not be much comfort for tenants in the short term but Domain’s chief of economics and research, Dr Nicola Powell, says it’s a sign the pressure is starting to ease.

“While it is still a very competitive market, increased investment activity has helped to ease some pressure on tenants, with national vacancy rates holding for the fourth month and the choice of rentals nudging higher over June,” Dr Powell said.

“This, together with new first homebuyer government incentives such as ‘Help to Buy’, has the potential to assist the transition of more tenants becoming homeowners, easing some of the demand pressures that the rental market is currently facing.”

Rents at new records, but slowing down

Domain’s latest report, released on Thursday, shows house and unit rents reached record highs across the combined capitals in the June Quarter, with the country seeing its strongest annual growth in roughly 14 years.

The median cost of renting a house in a capital city grew by another 3 per cent to $515 in the three months to June 30, slowing from a 4.2 per cent growth in the March quarter.

House rents jumped by 3.3 per cent in Sydney over the June quarter to a new record high of $620 a week, the steepest annual increase since 2009, while in Melbourne house rents increased 2.2 per cent to an all-time high $460 a week.

In Brisbane, it was the eighth quarter in a row of rising house rents and the steepest annual lift in the city’s history, due to young families relocating to the Sunshine State.

It is now $75 a week more expensive to rent in Brisbane than it was a year ago.

Meanwhile, the median rent for a capital city unit rose 3.4 per cent to $460 for June, slowing from a 4.7 per cent rise in March.

In Sydney, unit rents are set to hit a new record high next quarter as they rise faster than houses, after surging by 5 per cent over the June quarter to $525 a week.

Inner Melbourne units surged $45 over the quarter, as the return of international students and lower affordability hurdles of renting a unit pushed costs higher.

Increased rental costs have tracked a surge in property prices over the past couple of years as buyers made the most of ultra-low interest rates during the pandemic to get on the property ladder.

However, investors are now bracing for the value of their assets to cool off significantly as the Reserve Bank unwinds unprecedented monetary support and lifts the target cash rate.

So far the expected drop in property prices has not translated into a drop in rental costs but Dr Powell says there are signs that the tide is turning.

“(Rental) yields are also rising across every capital city for houses and most for units – this suggests purchasing prices are fairing weaker than rents and boosting yields, so it is a good time for investors to get into the market,” she says.

“We need to continue to see an increase in investor activity, address the supply of social housing and ensure we have the right government incentives for first home buyers. This will no doubt have a positive impact on easing rental conditions.”