Rental Growth

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<p>EXPERT OBSERVATION</p>
<p>Headline inflation increased by only +0.4% in the March quarter.</p>
<p>Tradables inflation was negative year-on-year for a third consecutive quarter.</p>
<p>There has been some consumer price inflation, mainly in areas influenced by government, as articulated by Shane Oliver of AMP: utilities, healthcare, education. </p>
<p>There's also been the obligatory excise on tobacco and booze. </p>
<p>But generally CPI in the private sector has been extraordinarily weak. </p>
<p><img src="https://3.bp.blogspot.com/-EMLo6TRQV-Y/Wt6vpkNhOFI/AAAAAAAApkA/vfRefQ0p_Yoe9s-SyoeO1sWrSC6Tb_W_ACEwYBhgL/s640/A3.jpg" width="640" height="394" data-original-height="831" data-original-width="1347"></p>
<p>Prices actually fell for clothing, household equipment, furnishings, and recreation. </p>
<p>Underlying inflation over the year did increase to +1.98%, though a stronger print will soon drop off the annual figure, and in any event this is still below the 2 to 3% target. </p>
<p><img src="https://4.bp.blogspot.com/-Fodx4jaDI8c/Wt6vrKVfYVI/AAAAAAAApkM/F6hgLqbWIp07Ofis_BQsWj9w6e59fFcNgCEwYBhgL/s640/B3.jpg" width="640" height="384" data-original-height="821" data-original-width="1365"></p>
<p>Ongoing weakness, it must be said, with the Australian economy appearing to be firmly entrenched in a low inflation environment. </p>
<p><strong>Rents off the mat</strong></p>
<p>Nationally rental price growth was off the mat, with rents up in Sydney (+2.4%) and Melbourne (+2.2%), but marginally down in Brisbane (-0.5%), and still negative year-on-year in Perth and Darwin, though the respective lows for these two resources capitals now appear to have passed.<br><br> Canberra's rental price growth has done a donut from significantly negative -2.5% to +2.7% over the past 11 quarters, and rents are accelerating fast.</p>
<p><img src="https://1.bp.blogspot.com/-chSZtq4Yk1k/Wt6vqOFeBNI/AAAAAAAApkI/55F714zQs6Uk4FJCTu4-K04ApY6LtV-SgCLcBGAs/s640/A1.jpg" width="640" height="376" data-original-height="823" data-original-width="1400"></p>
<p>Sydney rents continued to outpace all groups CPI by a significant margin, as they have tended to across the past 11 years.</p>
<p><img src="https://4.bp.blogspot.com/-GnXIXQ_L90E/Wt6vpxyt7VI/AAAAAAAApkE/Z7CZpTlFC6oLJ4wCHaZuDR6r83NU_YY-ACLcBGAs/s640/A2.jpg" width="640" height="356" data-original-height="831" data-original-width="1487"></p>
<p><strong>The wrap</strong> </p>
<p>Overall, seemingly no significant implications for interest rate moves in the near-term, with underlying inflation still below target (and missing expectations), as it has been for quarter after quarter after quarter.</p>
<p>Of course, +1.98% is getting pretty close to the target.</p>
<p>Wages growth may begin to pick up - following on from news of better earnings growth - but some of the key leading indicators such as broad money growth and building permits have weakened over the past year. </p>
<p>Hard to see any change in interest rates over the remainder of 2018 (and probably 2019) in my head, but nobody ever agrees with me on the world wide interweb.</p>
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National rental price growth rises off the mat: Pete Wargent

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<p><span>Rental rates climb over seasonally strong first quarter - but at a slower pace than in 2017, according to CoreLogic's</span> first Quarterly Rental Review for 2018 </p>
<p><span>Typically the first quarter of the year is the strongest for rental appreciation and growth.</span></p>
<p>Nationally, rents climbed by 0.3 per cent in March to be 1.1 per cent higher over the first quarter of 2018 and 2.2 per cent higher over the 12 months to March 2018. </p>
<p>In comparison to the first three months of 2017 when rents increased by 1.5 per cent, the growth in rental prices has slowed (-0.4 per cent).</p>
<p>Click here <a href="https://www.propertyobserver.com.au/images/2018/4/17/rents.jpg" target="_blank">to enlarge.</a></p>
<p><img src="https://res.cloudinary.com/dz9xllyip/image/fetch/c_scale,w_580,q_auto:good/https://s3-ap-southeast-2.amazonaws.com/po.images/2018/4/17/rents.jpg" alt=""></p>
<p>Rental growth over the first quarter is higher in the regional markets (+1.2 per cent) than in the capital cities (+1.0 per cent). This trend is also reflected in activity over the past 12 months – rents are up 3.1 per cent in the regions compared to an increase of 1.9 per cent across the capitals.</p>
<p>Over the first quarter, rents climbed in all capital cities except for Darwin (-0.3 per cent). The highest quarterly rental increases were in Hobart (+5.0 per cent), which also reported its strongest first quarter growth on record, and Canberra (+2.3 per cent).</p>
<p>Over the past 12 months, Hobart reported the highest growth in rental rates (+11.7 per cent). Rents climbed higher in all capital cities except Perth (-1.3 per cent) and Darwin (-1.6 per cent).</p>
<p>The national median rent is $427 ($426 for houses and $430 for units). Across the capital cities, the median rental is $459 per week. The median house rental in the capital cities is $460 compared to $453 for units. Across the regional markets, both houses and units averaged $355 per week.</p>
<p>At $374, Adelaide has the cheapest weekly rent out of all the capital cities. The highest median weekly rent is in Sydney, where the cost is $582.</p>
<p><span>Rental yields have increased nationally by 0.1 per cent over the past 12 months to 3.68 per cent. The highest rental yields are in Darwin (5.83 per cent) and Hobart (5.01 per cent). Melbourne (2.93 per cent) has the lowest rental yields, followed by Sydney (3.20 per cent).</span></p>
<p>CoreLogic researcher Cameron Kusher says the data shows the rental market has softened.</p>
<p>“The data suggests that in most capital cities the rental market has softened, although values are still rising they are doing so at a slower rate than they have over recent first quarters of the year.”</p>
<p><span>“From an investor’</span><span>s perspective, large new housing supply additions and slowing rental growth means that they will need to find ways to differentiate their properties from others. Whether that is on rental cost or by renovation, we would expect that compet</span><span>ition for tenants in most capital cities will increase.” </span></p>
<p><span>“Rental yields are climbing slightly from historic low levels however, they remain lower than they were a </span><span>year ago.</span></p>
<p><span>"Investors remain most active in NSW and Vic and have been targeting capital growth rather than rental return. With values now falling, active investors should be more focused on those regions </span><span>with stronger prospects for value growth and higher rental returns.” </span></p>
<p> </p>
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Rents climb, but at slower pace than last year: CoreLogic

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<p>Rental growth was flat at just 0.6 percent over the year to March 2017, according to the ABS inflation figures.</p>
<p>This is the equal lowest annual percentage growth since 1994, largely reflecting the new supply of apartments hitting the capital cities on the east coast.</p>
<p><a href="https://www.propertyobserver.com.au/images/2017/04/27/A6.jpg" target="_blank">Click to enlarge </a></p>
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<br><div>The national figure obscures contrasting fortunes around the capital cities.</div>
<div> </div>
<div>Sydney recorded annual growth in its rental CPI of 2.5 percent. </div>
<div> </div>
<div>In Melbourne rental price growth has been picking up over the past five quarters, although only to 1.7 percent year-on-year according to the ABS series (there has been considerably stronger growth in asking prices). </div>
<div> </div>
<div>Hobart recorded the fastest annual growth of the capital cities at 4.2 percent. </div>
<div> </div>
<div>In Canberra there has not been much to see in aggregate, but anecdotally there is a view that the annual land tax has turned investors away from houses leading to a shortage of detached rental stock (though as in most capitals there is clearly no shortage of new apartments, which has compensated tenants for now).</div>
<div> </div>
<div>In Darwin rents declined by 7.4 percent year-on-year, although this actually represents an improvement on the preceding quarter's drop.</div>
<div> </div>
<div>And in Perth, rents were down by 7.3 percent year-om-year, having now dropped by 12.1 percent from their peak. </div>
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<div><a href="https://www.propertyobserver.com.au/images/2017/04/27/A4.jpg" target="_blank">Click to enlarge</a></div>
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<br><div>In Brisbane nominal rents remain positive, but there's no doubt that inner city apartments rents are set for a tumble, as evidenced by the "for lease" banners strewn around the inner city.</div>
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<div>This from yesterday...</div>
<br><div class="separator"><a href="https://3.bp.blogspot.com/-PotrGvJHDlc/WQDxsUvwVtI/AAAAAAAAjbQ/tUknpxnVbnQqjWV1PrKg-ApGxG14UBZPgCLcB/s1600/IMG_1655.JPG"><img src="https://3.bp.blogspot.com/-PotrGvJHDlc/WQDxsUvwVtI/AAAAAAAAjbQ/tUknpxnVbnQqjWV1PrKg-ApGxG14UBZPgCLcB/s640/IMG_1655.JPG" width="640" height="480"></a></div>
<br><strong><span style="text-decoration: underline;">Benign inflation</span></strong><br><div> </div>
<div>The above figures feed in to the benign inflation picture.</div>
<div> </div>
<div>Moreover, while dwelling construction is expected to remain strong for some time in Sydney, new apartment projects are now being shelved or scrapped practically by the week in Melbourne and Brisbane.</div>
<div> </div>
<div>As each new Brisbane apartment project completes this will leave a small hole in the economy, which cumulatively will act as a drag on growth.</div>
<div> </div>
<div>For this reason the government will be looking to loosen the purse strings to pave the way for infrastructure projects to plug the hole, which can be achieved through borrowing without unnecessarily crippling the budget.</div>
<div> </div>
<div>A final point, the Sydney market has seen rents outpace CPI by a factor of two over the past ten years to rise by 56 percent.</div>
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<div><a href="https://www.propertyobserver.com.au/images/2017/04/27/A5.jpg" target="_blank">Click to enlarge </a></div>
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<div>This reflects that Sydney's construction boom was still addressing an inherent undersupply until recently, but stay alert because the balance is about to swing sharply in favour of tenants over the next couple of years. </div>
<div> </div>
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<p class="p1"><span class="s1">PETE WARGENT is the co-founder of <a href="https://allenwargent.com/" target="_blank"><span class="s2">AllenWargent</span></a> property buyers (London, Sydney) and a best-selling author and <a href="https://petewargent.blogspot.com/" target="_blank"><span class="s2">blogger</span></a>.</span></p>
<p class="p2"><span class="s3"><em>His latest book is </em><a href="https://www.bigskypublishing.com.au/Books/General-Interest/Four-Green-Houses--and-a-Red-Hotel/1015/productview.aspx" target="_blank"><span class="s2"><em>Four Green Houses and a Red Hotel</em></span></a><em>.</em></span></p>
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Rental growth at two-decade low: Pete Wargent

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<p>Melbourne’s office market was expected to have compressed further in the quarter ended September 2016, helped by moderate deal activity and strong service sector jobs growth, according to the latest office market report by commercial real estate firm Cushman &amp; Wakefield.</p>
<p>The fourth quarter marked the last inflow of new stock in the current development cycle with the completion of Towers 2 and 4 at Collins Square, the firm says in its Q4 Office Market Outlook for Melbourne. </p>
<p>With only the return of refurbished stock forecast for 2017, the new development cycle is expected to begin in 2018 with the development pipeline for completion stretching to the early 2020s. </p>
<p><a href="https://www.propertyobserver.com.au/images/2017/01/11/Q4Melb-PrimeRent.png" target="_blank">Click to enlarge</a></p>
<p><img src="https://www.urban.com.au/images/2017/01/11/Q4Melb-PrimeRent.png" alt=""></p>
<p><a href="https://www.propertyobserver.com.au/images/2017/01/11/Q4Melb-NetAbsorption.png" target="_blank">Click to enlarge</a> </p>
<p><img src="https://www.urban.com.au/images/2017/01/11/Q4Melb-NetAbsorption.png" alt=""></p>
<p>Sydney pain is Melbourne’s gain too. With the Sydney CBD facing stock constraints and heated face rents, Melbourne’s attractiveness remains, says the report.</p>
<p>Moderate deal activity has fuelled expectations of further compression from the Prime-grade vacancy rate of 6.7 percent reported in July. </p>
<p>Q4 prime gross effective rents rose 8.4 percent on an annual basis to $503 per sqm, with the upward trend expected to continue into 2017. </p>
<p>“As Sydney prime gross effective rents are trading at a 77 percent premium to Melbourne, tenants operating in both cities may prioritise Melbourne for future growth,” it says.</p>
<p>Transactions of note in the quarter include Deloitte pre-committing to 22,000 sqm as anchor tenants at 477 Collins Street, and Transurban signing on for 14,000 sqm to anchor Collins Square Tower 5. Collins Square Tower 4 is now at full capacity with Devondale Murray Goulburn committing to 5,200 sqm and PEXA committing to 2,600 sqm. </p>
<p><a href="https://www.propertyobserver.com.au/images/2017/01/11/Q4Melb-KeyDeals.png" target="_blank">Click to enlarge</a></p>
<p><img src="https://www.urban.com.au/images/2017/01/11/Q4Melb-KeyDeals.png" alt="" width="806" height="214"></p>
<p><a href="https://www.propertyobserver.com.au/images/2017/01/11/Q4Melb-Projects.png" target="_blank">Click to enlarge</a></p>
<p><img src="https://www.urban.com.au/images/2017/01/11/Q4Melb-Projects.png" alt=""></p>
<p>The report forecasts strong rental growth in the near term as new supply will not be able to catch up with strong demand. </p>
<p>“With a significant pipeline of confirmed and mooted future developments, and effective rents trading at a significant discount to Sydney, Melbourne appears to have time yet to run in this phase of the cycle,” it concludes.</p>
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Melbourne office space expected to see strong rental growth: Cushman & Wakefield

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<div>There are still a great many property investors around in the market right now, so there shouldn't be too much upwards pressure on rents at the national level.</div>
<div> </div>
<div>And, so it is!</div>
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<div>The weighted average annual rents inflation across Australia's eight capital cities steadied at +0.7 per cent in the third quarter of calendar year 2016, according to the ABS Consumer Price Index figures. </div>
<div> </div>
<div>As you can clearly see in the chart below, nominal rental prices at the national level only tend to spike dramatically when property investors are spooked out of the market for some reason, thereby stymying the available supply of rental stock.</div>
<div> </div>
<div>This has only happened twice over the past 35 years or so, with the most recent trigger point being the global financial crisis. </div>
<div> </div>
<div>However, with mortgage rates close to their record lows, there are presently oodles of investors in the domestic market - and many more from overseas too! - even in the face of recent curbs. </div>
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<div><a href="/images/2016/10/28/pete1.jpg" target="_blank">Click to enlarge</a></div>
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<strong><span style="text-decoration: underline;">City by city</span></strong><br><strong><span style="text-decoration: underline;"><br></span></strong>
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<div>Of course, the outlook is as always quite different for each capital city, region, and sub-region.<br><br>
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<div>I have presented a second chart below as an index to show what has happened to nominal rents over the last four-and-a-half decades.</div>
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<div>One of the reasons I have done so is that although commentators seemingly love to spin out 'inflation-adjusted' results, the reality for many of us living today is that we often have 'rent versus buy' equations to weigh up, and for these decisions we understandably - and logically - tend to think in nominal terms.<br><br>"Are rents rising? Are dwelling prices rising? What about holding costs? Will mortgage rates increase or decrease? What is the smartest financial decision here?"</div>
<div> </div>
<div>In Sydney, annual rents inflation accelerated slightly to +2.5 per cent, which is still close to double the +1.3 per cent headline rate of inflation.</div>
<div>
<br>Blogsites and media do love a good falling rents meme, but this hasn't really been backed up by the facts, at least in Sydney's case.<br><br>Indeed, Sydney rents have increased at double the rate of inflation for nearly a decade now.<br><br>
</div>
<div>Since the beginning of 2007 Sydney's rental index has increased by +54 per cent, exactly double the rate of inflation for the harbour city over the same time horizon. </div>
<div> </div>
<div>Rental growth may be softer than it was, and in fact it is already easing in some pockets of Sydney, but rents have hardly 'fallen' since the financial crisis as commentary sometimes tries to imply.</div>
<div> </div>
<div>It's a very different Jackanory in the resources capitals, mind you.<br><br>After a great surge in both rents and dwelling prices through the heady days of the resources boom, the rental index numbers are in full on decline mode in Perth, falling back by -6.4 per cent over the year to September.<br><br>This puts the rental index for Perth back close to where it was at the peak of the mining boom four years ago in Q3 2012.<br><br><div><span>And in Darwin, the equivalent year-on-year decline has been -7.7 per cent, although certain other metrics have implied that the real estate market in the Top End may be stabilising somewhat. </span></div>
<div><span> </span></div>
<div><a href="/images/2016/10/28/Screen%20Shot%202016-10-28%20at%208.51.32%20AM.png" target="_blank"><span>Click to enlarge</span></a></div>
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<div><img src="/images/2016/10/28/Screen%20Shot%202016-10-28%20at%208.51.32%20AM.png" alt=""></div>
<br><div>Rental growth is flat on this index in Canberra, while interestingly the rental growth index for Adelaide has by and large tracked that of Melbourne closely for almost the entire data series since 1972. You learn something new every day!</div>
<div> </div>
<div><strong><span style="text-decoration: underline;">Supply response cavalry now arriving</span></strong></div>
<br><div>The chart above hints at why Rory Robertson was always unlikely to lose his high profile 2008 bet cf. Sydney house prices correcting sharply.</div>
<div> </div>
<div>While the annual rate of population growth in New South Wales rose incessantly from 2004 to 2008 up to an annualised peak of nearly 118,000, very little accommodation was actually being built, and this has resulted in nearly a chronic supply shortage and nearly a decade of strong rents growth. </div>
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<div><a href="/images/2016/10/28/Screen%20Shot%202016-10-28%20at%208.52.55%20AM.png" target="_blank">Click to enlarge</a></div>
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<div>What you don't need any charts to tell you - just listen to the jackhammers! - is that this dynamic has at last changed, with dwelling construction at now really hitting its straps over the last couple of years, and a veritable flood of apartment completions in the post.<br><br>---<br><br>In other news, Domain reported that Sydney's median house price rose by +2.7 per cent in the September quarter to a fresh all-time high of $1,068,000.<br><br>In Melbourne, the median house price rose by an even more sprightly +3.1 per cent over the quarter and +9.1 per cent over the year to also hit a record high of $774,000.<br><br>Somewhat surprisingly, median unit prices in Melbourne performed even more strongly again in the quarter in rising by +4.5 percent, to be +5.5 percent higher over the year.<br><br>Melbourne has been constructing dwellings like fury in recent years, but population growth has accelerated to extraordinarily high levels as you can see in the chart above. </div>
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<p><span><em>PETE WARGENT is the co-founder of <a href="https://allenwargent.com/" target="_blank" rel="nofollow">AllenWargent</a> property buyers (London, Sydney) and a best-selling author and <a href="https://petewargent.blogspot.com/" target="_blank" rel="nofollow">blogger</a>.</em><br></span></p>
<p><em>His latest book is <a href="https://www.bigskypublishing.com.au/Books/General-Interest/Four-Green-Houses--and-a-Red-Hotel/1015/productview.aspx" target="_blank" rel="nofollow">Four Green Houses and a Red Hotel</a>.</em></p>
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Rental growth steadies, though not in Sydney

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<p><span>Combined capital city rental rates fell by 0.6 percent over the 12 months to June with rents rising in some rural areas according to CoreLogic.</span></p>
<p><span>CoreLogic reported falls over the year in Brisbane, Adelaide, Perth and Darwin with rental growth slowing from already low levels in most other capital cities.</span></p>
<p><a href="/images/2016/07/29/Screen%20Shot%202016-07-29%20at%2010.40.35%20AM.png" target="_blank"><span>Click to enlarge</span></a></p>
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<p> </p>
<p><span>Senior research analyst Cameron Kusher said w</span>hile rental rates are falling in many capital city regions, today’s data suggests that in mid-sized and coastal regional markets, rental demand is picking-up, with these regions seeing a rise in migration over recent years.</p>
<p>“Perhaps we are seeing evidence of try-before- you-buy in these regions where people are moving into the regional areas and renting before fully committing to a purchase," he said.</p>
<p>“The fact that units rents are increasing in many coastal locations is potentially reflective of the recovering markets spurred on by a lower Australian dollar and an improvement across the tourism sector.” </p>
<p><span>"For units, only three of the 25 council areas listed are located within a capital city (Hobart, Pittwater and Wyndham). </span></p>
<p><span>"NSW dominates the list with 13 regions with the number of council areas across the remaining states recorded at: six in Vic, two in Qld, one in SA, and one in WA and two in TAS. Most of the top 25 regions listed are coastal lifestyle markets."</span></p>
<p><a href="/images/2016/07/29/Screen%20Shot%202016-07-29%20at%2010.40.42%20AM.png" target="_blank"><span>Click to enlarge</span></a></p>
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Rental growth stronger in regional Australia than capital city markets: CoreLogic

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<p>Over the coming months, rental rates could begin to fall on an annual basis due to new supply in the market, going by the latest release of the monthly CoreLogic RP Data Rent Review results for February.</p>
<p>“With construction activity set to peak over the next 24 months, and with many new properties still to settle, there is a real possibility that rental rates will fall over the coming months," said research analyst Cameron Kusher.</p>
<p>“Based on our expectations, landlords have little scope to lift rental rates while for renters, it potentially means more surety in securing accommodation and the potential to upgrade into a higher level of accommodation for a similar cost.”</p>
<p>He said the cause of the current slowdown in rental growth was falling wages, excess rental supply in certain areas and lower rates of population growth and population mobility which was hurting demand for rental accommodation.</p>
<p>Here are the February findings:</p>
<p> Capital city rental rates continue to record no change over the year</p>
<p> Weekly rents across the combined capital city measure increased 0.3% in February, however, rents were unchanged over the past 12 months </p>
<p> Rental rates have increased over the year in Sydney (+1.5%), Melbourne (+2.2%) and Canberra (+1.6%) and are unchanged in Hobart.</p>
<p> Rents have fallen over the year in Brisbane (-0.7%), Adelaide (-0.4%), Perth (-8.4%) and Darwin (-13.3%).</p>
<p> Currently, combined capital city rental rates are $488/week for houses and $467/week for units.</p>
<p> CoreLogic RP Data analysis shows rents across the combined capitals rose by 0.3% in February 2016. Rental rates increased over the month in all capital cities except for Perth and Darwin.</p>
<p>Results Summary:</p>
<p> Dwelling rental rates across the combined capital cities have not moved and continue to sit at now $485 per week for the past year; at the same time last year rental rates had increased by 1.7% highlighting that the slowdown in rental conditions has been quite sharp over the year.</p>
<p> Rental rates in Brisbane, Adelaide, Perth and Darwin are currently experiencing some of their largest annual falls on record.</p>
<p> All capital cities are experiencing annual rental changes which are well below their decade average levels.</p>
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Rental growth rates weakest performance since 1996: CoreLogic RP Data

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<p><span style="line-height: 1.3em;">Rental yields across the combined capital cities have gradually trended lower over the past two decades and currently sit at record-low levels. </span></p>
<p><span style="line-height: 1.3em;">The change in rental rates have also seen a slowdown in recent years which has culminated in no change in rents over the past year. This represents a historically weak market for rental growth. </span></p>
<p>Looking at rental growth over the past decade, across the combined capital cities rental rates increased by 50.7 percent over the period, or 4.2 percent per annum. This is a lower level of increase than home values which have increased by 72.0 percent (5.6 percent per annum) over the same period. A split by property types, shows there hasn’t been a substantial difference in performance, with house rents increasing by 50.3 percent compared to a 53.7 percent rise in unit rents. </p>
<p>By breaking out the results across the individual capital cities and looking at the total rental change over the past decade, these show that Sydney (+59.4 percent) and Perth (54.6 percent) have seen significantly greater increases in rents than all other capital cities. </p>
<p><a href="/images/2016/02/23/Screen%20Shot%202016-02-23%20at%204.18.39%20PM.png" target="_blank">Click to enlarge</a></p>
<p><img src="/images/2016/02/23/Screen%20Shot%202016-02-23%20at%204.18.39%20PM.png" alt="" width="826" height="757"></p>
<p>Although rental growth has been strong in some cities, in most instances home value growth has outpaced rental growth over the past decade. The exceptions have been Hobart and Perth where rental increases have outstripped value growth, pushing yields higher over the decade, and Brisbane where value growth and rental growth have each been recorded at 44.0 percent over the decade.</p>
<p>The other side of the rental growth equation is of course gross rental yields which highlight the expected annual <span style="line-height: 1.3em;">rental return on an investment property. There are a few points that should be highlighted, they are based on the home value so no consideration is given to borrowings nor are there allowances for costs. Furthermore, the calculation assumes that there is no vacancy, which in the current environment is becoming somewhat more difficult to achieve. </span></p>
<p>Over the past 10 years there has been little overall change in gross rental yields across the capital cities. Although capital city rental yields are now at an historic low of 3.5 percent the shift from 4.0 percent 10 years ago has been relatively minimal. Perth and Hobart are the only cities in which yields are now higher than they were 10 years ago while in Brisbane they are unchanged over the period.</p>
<p>Melbourne and Darwin have seen the greatest softening in gross rental yields over the past decade. Melbourne, where gross yields are the lowest of any capital city, have slipped from 4.2 percent ten years ago to 2.9 percent currently. </p>
<p>With rental rates falling and yields sitting at record low levels at a time when housing construction is at its highest level on record it is reasonable to expect that rents and yields will slip further over the coming years. </p>
<p>Of course we have recently seen the Labor opposition propose changes to negative gearing and the capital gains tax discount. Were policies such as these to be implemented it could change the situation for investors. Whereas over recent years their focus has clearly been on value growth, attention could begin to become more balanced w<span style="line-height: 1.3em;">here investors place a higher degree importance on the yield profile and potential for positive cash flow.</span></p>
<p><a href="/images/2016/02/23/Screen%20Shot%202016-02-23%20at%204.20.11%20PM.png" target="_blank">Click to enlarge</a></p>
<p><img src="/images/2016/02/23/Screen%20Shot%202016-02-23%20at%204.20.11%20PM.png" alt="" width="823" height="377"></p>
<p><em>Cameron Kusher is research analyst for CoreLogic RP Data. You can contact him <a href="https://blog.corelogic.com.au/about/" target="_blank">here</a>.</em></p>
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ckusher-ujnxiKuFQs

Housing rents slower to increase than home values: Cameron Kusher

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<div>The latest Consumer Prices Index revealed some interesting trends in rental growth to December 2015.</div>
<div> </div>
<div>At the national level rental growth of just +1.2 percent is the slowest we have seen since 1995, which makes a good deal of sense given the great surge in the number of investors and the construction response to rising dwelling prices. </div>
<div> </div>
<div>Essentially this is the opposite of what happened in 1985 when investors exited the market following restrictive changes to tax legislation.</div>
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<div><a href="/images/2016/01/29/B1.jpg" target="_blank">Click to enlarge</a></div>
<div><img src="/images/2016/01/29/B1.jpg" alt=""></div>
<div> </div>
<div>
<div><span style="text-decoration: underline;"><strong>City by city</strong></span></div>
<div> </div>
<div>In most quality locations, rental growth is simply following the cycle, slowing in response to a surge in both construction and the number of investor-owned dwellings.</div>
<div> </div>
<div>Annual rental growth remains positive in Sydney (+2.3 per cent), Melbourne (+1.7 per cent), Brisbane (+1.0 per cent), Adelaide (+1.2 per cent), and Hobart (+1.1 per cent).</div>
<div> </div>
<div>It is a truism to say that there are diverging trends within those markets, particularly noteworthy being slowing rents in high density and high rise apartment complexes.  </div>
<div> </div>
<div>Rental growth has turned negative in Perth and Darwin, following an enormous surge through the mining boom, while Canberra has actually recorded moderately negative rents for the past three years.</div>
<div> </div>
<div><a href="/images/2016/01/29/B2.jpg" target="_blank">Click to enlarge</a></div>
<div><img src="/images/2016/01/29/B2.jpg" alt=""></div>
<div> </div>
<div>
<div><strong><span style="text-decoration: underline;">Long run trends</span></strong></div>
<div> </div>
<div>It pays to be wary about analysis calling "plummeting" rental growth, but it is true that the rental market will generally need to slow in order that the high levels of investor stock can be absorbed. </div>
<div> </div>
<div>Eventually stronger rental price growth will return, but only once investor finance has pulled back, and the cycle does take time to work through. </div>
<div> </div>
<div>The long run data shows the cyclical nature of rental growth by capital city. </div>
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<div><a href="/images/2016/01/29/B3.jpg" target="_blank">Click to enlarge</a></div>
<div><img src="/images/2016/01/29/B3.jpg" alt=""></div>
<div> </div>
<div><span>Looking at rental growth by year it is clear that while rental price growth been strongest in Sydney over the past five years, over the past decade the resources states have seen the greatest increase in the cost of renting, some of which is now unwinding.</span></div>
<div><span> </span></div>
<div><a href="/images/2016/01/29/C4.jpg" target="_blank"><span>Click to enlarge</span></a></div>
<div><span><img src="/images/2016/01/29/C4.jpg" alt=""></span></div>
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<div> </div>
<div>
<p><span><em>PETE WARGENT is the co-founder of <a href="https://allenwargent.com/" target="_blank" rel="nofollow">AllenWargent</a> property buyers (London, Sydney) and a best-selling author and <a href="https://petewargent.blogspot.com/" target="_blank" rel="nofollow">blogger</a>.</em><br></span></p>
<p><em>His latest book is <a href="https://www.bigskypublishing.com.au/Books/General-Interest/Four-Green-Houses--and-a-Red-Hotel/1015/productview.aspx" target="_blank" rel="nofollow">Four Green Houses and a Red Hotel</a>.</em></p>
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National rental growth slowest since 1995: Pete Wargent

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<p>2015 was a lacklustre year for rental growth in Australia with rents increasing by just 0.3% in 2015; not exactly the news investors are looking to read about but good news for those looking to rent.</p>
<p>We’ve never seen rental growth as sluggish as it is at the moment. Furthermore, we’re expecting to see more of the same over the coming months due to increases in the supply of new housing, rental stock and a further slowdown in migration rates. </p>
<p>The only cities to see an increase in weekly rental rates were Sydney with an increase of 1.9 percent, Melbourne (2.2 percent), Hobart (0.6 percent) and Canberra (1.9 percent) while rates fell in Brisbane by (-0.3 percent), Adelaide (-0.2 percent), Perth (-8.0 percent) and Darwin (-13.3 percent). <span style="line-height: 1.3em;"> </span></p>
<p>A comparison between December 2015 and December 2014 shows in 2014 annual rental growth was slowing but was tracking at a much higher 1.8% which highlights just how much the rental market eased throughout 2015. </p>
<p><a href="/images/2016/01/12/Screen%20Shot%202016-01-12%20at%209.21.53%20AM.png" target="_blank">Click to enlarge</a></p>
<p><img src="/images/2016/01/12/Screen%20Shot%202016-01-12%20at%209.21.53%20AM.png" alt=""></p>
<p>The construction boom across the capital cities, coupled with slowing population growth, low mortgage rates and the recent heightened level of activity from investors are the major contributing factors to the slowing rental growth in 2015.</p>
<p>Although Sydney and Melbourne saw the largest ramp up in new housing supply, both cities still recorded rental increases over the year, although rental growth is slowing relative to 12 months earlier.</p>
<p>It is clear that the increase in investment stock continues to provide landlords with little scope to lift rental rates while the low mortgage rate environment provides little incentive to push yields higher.</p>
<p>We envisage that growth in rental rates is likely to remain weak or potentially slow even further over the coming months. The good news for those looking to rent is the possibility <span style="line-height: 1.3em;">that rental rates will fall even further over the coming year.</span></p>
<p><span style="line-height: 1.3em;">While the news for renters will be welcomed, investors may be facing weaker capital gains coupled with little in the way of rental growth or yield.</span></p>
<p>The large pipeline of residential construction activity and recent high levels of investment demand means that renters are likely to continue to have plenty of choice.</p>
<p><a href="/images/2016/01/12/Screen%20Shot%202016-01-12%20at%209.15.47%20AM.png" target="_blank">Click to enlarge</a></p>
<p><em><strong><img src="/images/2016/01/12/Screen%20Shot%202016-01-12%20at%209.15.47%20AM.png" alt=""></strong></em></p>
<p><em><strong> </strong></em></p>
<p><em><em>Cameron Kusher is research analyst for CoreLogic RP Data. You can contact him <a href="https://blog.corelogic.com.au/about/" target="_blank">here</a>.</em></em></p>
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