Rental market levelling out for first time in seven years

The pace of rental price increases is finally slowly, with the December quarter increase in rents at the lowest level since 2018.

Rents rose 0.4 per cent in that three month period to the end of 2024 and 4.8 per cent over the year after surging 8.1 per cent in 2023, according to CoreLogic’s latest Quarterly Rental Review released on Wednesday.

While the easing of rental pressure will be welcome news for the one third of Australians living in a rental property, renters are still doing it particularly tough.

Since the onset of Covid, rents have increased by 36.1 per cent nationally, equivalent to a rise of $171 per week, or $ 8,884 per year at the median level.

A majority of renters are now experiencing rental stress, whereby more than 30 per cent of income is spent on the rent.

As of September 2024, assuming a median household income, renters were spending approximately 33.0 per cent of annual pre-tax income to service the median rent, the highest portion since CoreLogic started tracking rental affordability in 2006.

According to the soon-to-be-released API Magazine Property Sentiment Report Q4 2024, a disturbing 69 per cent of respondents who described themselves as under or rental or mortgage stress said they had slipped into that category within the past year.

In Sydney, vacancy rates were improving but REINSW CEO Tim McKibbin warned that any celebrations about the end of the rental crisis should definitely be put on hold.

Over the last month, the vacancy rate for Sydney overall rose by 0.4 per cent to 2.2 per cent. Accounting for this rise was an increase in vacancies in each of the inner, middle and outer rings of Sydney to be 3.0 per cent (+0.9 per cent), 1.8 per cent (+0.2 per cent) and 1.7 per cent (+0.2 per cent) respectively.

“While this increase is positive, we’re still experiencing extreme lows in the availability of rental accommodation as the rental crisis continues to grip New South Wales.”

“The residential rental market is fluctuating, but three things remain certain; the availability of stock is at an all-time low, weekly rents are rising and tenants are faced with ever-increasing living costs.

“None of these things are showing any signs of getting better – in fact, for many, they’re getting worse.”

According to CoreLogic, Sydney maintained its position as the country’s most expensive rental capital, with a median weekly rental value of $773. Stronger rent rises saw Perth take out the second spot at $695 p/w, overtaking Canberra at $667 p/w.

Hobart is still the country’s most affordable rental capital and was the only capital to record a median weekly rental value under the $600 mark, at $554 p/w. Melbourne came in second with the typical dwelling renting for $604 p/w, followed by Adelaide at $611 p/w.

The combined regions continued to deliver stronger rental growth compared to the capitals, up 1.2 per cent over the quarter and 6.2 per cent over the year. By comparison, the combined capitals recorded a milder 0.1 per cent quarterly increase and a 4.3 per cent rise over the 12 months to December.

Over the year to December, all capitals and property types recorded a rise in rents. Perth recorded the largest increase in house rents, up 8.0 per cent or $52 p/w, while Adelaide’s 9.2 per cent rise was the highest among units.

CoreLogic economist, Kaytlin Ezzy, pointed to affordability as a key driver.

“Rental affordability continues to be a significant drag on rental growth.”

“The net result has potentially seen some prospective renters delay their decision to leave the family home, while others have looked to form larger share households as a way of distributing the additional rental burden, unwinding the previous shrinking in the average household size that was apparent through the early stages of Covid,” she said.

Property price hikes erase yield gains

With dwelling values up 4.9 per cent and rental values up 4.8 per cent over 2024, national gross rental yields held steady at 3.7 per cent over the year. While flat at the national level, yields are around 50 basis points above the recent low recorded in January 2022 (3.2 per cent) but remain around 50 basis points below the pre-COVID decade average (4.2 per cent).

Following the national trend, gross rental dwelling yields across the combined capital cities and combined regional markets also held steady at 3.5 per cent and 4.4 per cent, respectively.

A similar result was seen across property types nationally, with rental yields for houses holding steady at 3.5 per cent over the year, while gross rental yields for units rose slightly, from 4.4 per cent in December 2023 to 4.5 per cent in December 2024.

Despite stable headline results, changes across the individual capital city gross rental yields were more varied and resulted in a changing of the guard.

Declining values (-3.0 per cent), along with moderate rental growth (4.1 per cent), saw Melbourne’s gross rental yield rise 29 basis points over the year to 3.71 per cent. Concurrently, double-digit value growth in Brisbane (11.2 per cent) and Adelaide (13.1 per cent) saw rental yields decline -31 basis points and -21 basis points over the year.

Perth saw yields fall 30 basis points over the year, from 4.5 per cent to 4.2 per cent. Sydney yields held steady at 3.0 per cent.