Very high rental growth is unsustainable while income growth remains subdued: CoreLogic's Eliza Owen

Australian landlords have seen the highest annual growth in dwelling rents since January 2009.

But very high rental growth is unsustainable while income growth remains subdued, CoreLogic's Eliza Owen has advised.

“I think we can expect a similar outcome for the Australian rental market as the purchasing market. 

"Very high rental growth is unsustainable while income growth remains subdued. 

"The result will likely be more subdued growth rates in the coming quarters, especially as investor participation trends higher, delivering more rental supply,” Ms Owen said.

CoreLogic’s Rental Review for the June 2021 quarter shows despite rental growth slowing over recent months, the latest figures take national rental rates 6.6% higher over the year.

CoreLogic’s national rent index recorded a 2.1% rise in the three months to June 2021, down on the 3.2% rise over the March quarter. 

National gross rental yields were recorded at 3.41% in the June quarter, down from 3.55% over the March quarter and 3.73% a year earlier, as dwelling values outperform rental growth.

Regional rents continued to outpace capital city rents, rising by 2.7% in Q2 compared to a 1.9% rise in capital city rents, both down quarter-on-quarter, the highest annual growth result on record, with the CoreLogic rental index commencing from 2005.

CoreLogic’s Head of Research Australia, Eliza Owen, says Australia has not seen rental value increases this high for over a decade. 

“Following subdued rental performance through much of the 2010s, the Australian rental market has seen an increase in values due to many of the same factors that have led to the current housing price upswing.

"These factors include increased government stimulus through COVID-19, accumulated household savings through lockdown periods, the swift economic recovery seen as restrictions eased, and a lack of rental supply in some markets have also exacerbated rental price increases, particularly in major centres of regional Australia.

Despite the strong national and combined regional figures, the change in rents over the year ranged from 21.8% growth in Darwin, to a 1.4% decline in Melbourne. 

Canberra remains the most expensive city to rent, with Adelaide the most affordable.

“In Sydney and Melbourne, unit rents continue to show year on year decline, at -1.1% and -6.4% respectively.

"As noted in previous quarters, these cities, which have historically had the highest intake of international migrants, have seen rental demand most impacted by international border closures amid the pandemic. 

"Although demand across these unit markets remains fairly subdued, there are signs that rents may be stabilising at lower levels.

“In fact, Sydney unit rents have begun to creep higher in recent quarters, including a 1.8% uplift in the three months to June. 

"Melbourne unit rents have also started to show signs of stabilising, with values remaining flat over the quarter."

Melbourne recorded the weakest growth in rents over Q2. House rents were up 1.1%. Unit rents saw no change over the quarter, but showed a minor rise in the month of June of 0.3%.

"Recent lockdown conditions across Sydney may impact rental markets where there are high concentrations of renters in affected industries, such as hospitality and tourism."

These regions include the inner city market of Sydney, which has been one of the more subdued Sydney rental markets through the pandemic.