05 Feb Sydney house rents decline – Nicola Powell
Sydney house rents have declined annually for the first time in more than 12 years. Sydney is no longer the nation’s most expensive capital city to rent a house. That is just one of the facts emerging from the Domain Rental Report. We discuss all the findings with Domain’s Nicola Powell.
Kevin: A couple of the indicators we always try to look at in the market to determine where it’s going, one is what’s happening with rentals and particularly what’s happening with vacancy rates. We look at median prices as well. But the focus of this talk is going to be on what’s happening with median rental prices and you’ll notice that they’re very different all around Australia, once again highlighting how diverse this market is.
Kevin: Joining me to talk about this from Domain, they’ve just released their rental report, Nicola Powell. Nicola, thank you very much for your time.
Kevin: This report does actually highlight, doesn’t it, just how patchy the Australian market is. Different in different areas.
Nicola: Yes, that certainly is the case. We are seeing some different conditions play out in all of our capital city markets. You know, some are going backwards, some are still improving, and Canberra and Hobart certainly are the tightest rental markets out of all of our capital cities.
Kevin: Yeah, well, in this show of course we’ve just heard that the HIA have said that housing approvals around Australia have actually declined but they’ve improved substantially in Hobart. So we’re going to see more supply coming on there?
Nicola: I think Hobart certainly is in need of supply. What we’re seeing for both rents and for the sales market is the prices continue to rise. If we focus on the rental market we have seen significant rises, it’s been the strongest performing in terms of the annual growth in house and unit rents over the year. Actually had double digit annual growth for unit rents over the year. I think really it had been tight and challenging conditions for tenants down in Hobart.
Nicola: One of those answers to that is supply. It’s a simple answer really. But we are seeing a development response. As you mentioned we have seen an increase in construction. But it does take a little while for that development pipeline to come onto the market and alleviate conditions. Also it is dependent upon investor activity and we know that that lending landscape has changed, and we have seen a pullback of investor activity from those highs that we were recording at that national level.
Kevin: Interesting to look at the difference … The contrast between houses and units. Sydney the only house market to actually decline, all the others showed a slight increase.
Nicola: That’s correct. So we saw houses in Sydney decline annually for the first time in more than 12 years. For house trends it means that Sydney is now no longer the nation’s most expensive capital city to rent a house. That title is now taken by Canberra. What we’re seeing in Canberra rents are still rising, where Sydney house rents have declined. There is a $20.00 between Sydney and Canberra now. Really the first time we’ve seen Canberra house rents higher than Sydney in roughly 11 years. So certainly some different dynamics in those two capital city markets.
Kevin: What’s happening in terms of yields? We’ll stay with houses for a moment. Are yields improving?
Nicola: We have seen yields improve, particularly … We’ve got to remember in Sydney and Melbourne they have been at historic lows. But we have seen those yields improve and it does indicate that what we are seeing are rental prices are holding up relatively firmer compared to the sales market, where we have seen prices decline.
Kevin: It’s great to see Perth emerging from some pretty tough times; increase in annual rents and also coupled with improving yields. It’s going to be a good option for investors.
Nicola: Yes. I think Perth could be on the radar of investors. Perth also had a new title this quarter, it is the most affordable city to rent a unit. So it does overtake Adelaide, which previously did have the title. But what we are seeing a little bit of perhaps a glimmer of a turnaround for the rental market in Perth, which is obviously what landlords want to be hearing. We have seen house rents in Perth increase annually for the first time in roughly half a decade and unit rentals have now been stable for seven consecutive quarters.
Nicola: Both of these scenarios is really a marked improvement following the four years of weakened rental prices that Perth did experience up until the end of 2017. What we’re seeing is a number of dynamics play out. We are seeing a slowing of construction in Perth. A little bit of an increase in demand, we have seen rental supply decline within Perth. So I think perhaps we’re seeing a bit more of a balance within that market, and perhaps particularly when you look at the foreign buy surcharge that has been introduced in WA. What you could see now is those foreign buyers who would have perhaps been purchasing will actually stay in the rental market a little bit longer now because of that increased surcharge. So that could put additional pressure on the rental market.
Kevin: Just turning our focus to units for a moment, good to see that Brisbane which has been tipped for many, many years as having an oversupply of particularly inner city units, recording the strongest annual increase in almost three years.
Nicola: Yeah, that’s correct. What we are seeing is a bit of an increase both for houses and for units. I think Brisbane rental market is slowly turning around to favour those landlords. We are seeing the underlying demand start to absorb that supply. You have to remember this is a bit of a change given the prolonged period of stability that we’ve seen in the Brisbane market. I think there’s a number of factors going on here. We have seen certainly a slowing in development construction. But Queensland has the highest internal migration out of all of the states and territories. So I think that increase in population, growing jobs market, improved economy, also great affordability compared to neighbouring states continues to lure residents particularly from Sydney, in terms of those lifestyle aspects and affordability.
Kevin: Thank you so much for your time. I’ve been talking to Domain’s senior research analyst, Dr. Nicola Powell.
Kevin: Nicola, thank you very much for your time.
Nicola: Thank you.