As more renters leave the rental market

and opt for their first new home, rental

rates are starting to stabilize

More recently the rental market appears to have peaked with national weekly

median rents falling slightly in each month post March.  On average weekly

house rents fell by 5 percent ($15) over the June quarter. As demand for

rental accommodation grew, the supply of new housing and investor numbers

remained consistently low (the market is reliant on private investors to provide

the vast majority of rental housing).With rental affordability becoming a real

issue it is likely more renters are choosing units rather than houses for the lower

rents, lower upkeep and the fact that they can live in more desirable locations

compared to detached housing rents. At the other end of the spectrum, the only

mainland capital city to record an improvement in the median weekly rental rate

was Darwin which now has the most expensive weekly rental rate for houses of

any capital city. The resilience of the rental market for units is not surprising. As

more households were financially blocked from buying a home the only other option

was to rent. The largest falls in house rents have been recorded in Canberra where

the median weekly rent is down just over 6 percent for the June quarter. On

average, renters in Darwin are paying about $100/week more to rent a house

than someone renting in Sydney.The net result of this high demand and lack of

new supply is that there has been a large amount of upwards price pressure on

weekly rents. Investors shouldn't be discouraged by the recent peak in rental

markets. With such low vacancy rates and not a great deal of new supply entering

the market it is logical to expect weekly rents to avoid any significant declines for

the foreseeable future. The average gross rental yield for units has fallen only

slightly (4 percent to 3 percent over the June quarter) thanks to rents staying

relatively firm and a lower rate of growth in unit values over the quarter (2 percent).

The figures presented above outline the broad trends in the market – astute

investors need to be digging below the surface of these macro trends and identifying

strategic markets that will satisfy their investment criteria. In fact, rental rates

have been rising steadily since housing affordability became a real issue in the

early part of the new decade. Rental yields remain historically higher than the long

term average and competition amongst investors hasn’t gathered too much pace

just yet. The improvement in housing affordability together with declines in rental

affordability has caused many renters to assess whether buying is now a better

option than renting. Additionally capital growth has once again become evident

which demonstrates the resilience and consistency of returns in the Australian

residential property market. Nationally, the gross rental yield for houses peaked

at 7 percent in March and has since fallen to 4 percent due to a fall in weekly

rents and increase in house values of 1 percent over the quarter. With rental

rates now coming off the boil and property values once again rising we are

seeing the first signs of rental yields being eroded.

The median weekly rent for a Canberra house has fallen from $530 in March ‘09

to $498 in June. Unit rents have been much more resilient, recording a fall of just

6 percent over the June quarter. Renters have been hit hard over the last three

years with rents across the country rising by an average of 30 percent over this

period; renters, on average, are now paying $95/week more to the landlord than

three years ago.The easing in weekly rents comes as housing affordability returns

to levels not seen since 2002 thanks to interest rates reaching 75 percent and

modest falls in housing values. Vacancy rates remain tight across the nation with

all capitals recording less than 3 percent vacancy in rental stock.

Renters shouldn’t get their hopes up too much however. For investors, units have

historically provided stronger rental yields and it looks set for this trend to continue.

Unit rents have virtually remained steady since March and actually improved in

Brisbane, Darwin and Adelaide over the June quarter. Commonwealth Bank of

Australia showed there had been a substantial increase in the number of suburbs

around Australia that are now cheaper to buy than rent.

Locally vacancy rates still remain very low with any property listed for rent receiving

enormous amounts of enquiry. Many tenants are experiencing landlords selling the

property from under them, thus having to find other suitable housing. As the grant

is starting to be wound up for the first home buyers boost, we are going to experience

more vacancy shortages.

 

www.nobullrealestate.com.au

RP Data Sourced

21/08/09