Investor surge slows rental growth to 20-year low

A sharp rise in home values in two of Australia’s largest capital cities hasn’t flowed through to rental rates, according to the latest CoreLogic RP Data rental review, which yesterday revealed that rental increases are now at their slowest pace on record at 0.7 per cent over the year.

“Based on year-to-date data results, rental growth conditions have softened during 2015,” CoreLogic RP Data research analyst Cameron Kusher said.

“The 0.7 per cent rise in rental rates over the past year is the slowest rate of rental growth on record based on data which goes back as far as December 1995,” Mr Kusher said.

“The reasons behind this lackluster result for the rental market can be attributed to the extent of the current construction boom across the capital cities and slowing population growth.

“Added to this is the surge in investor participation in the housing market which is contributing to weaker rental growth by adding to the rental stock.”

The three cities to experience the largest ramp up in new housing supply and investor activity over recent years – and the only three cities to record annual rental growth – are Sydney, Melbourne and Brisbane, according to CoreLogic RP Data.

The group said it should be noted that these three cities have still seen a fairly sharp slowdown in rental growth.

Over the past month, weekly rents have moved lower across every capital city except Sydney and over the past three months rents are lower in all cities except for Melbourne where they are unchanged.

According to Mr Kusher, annual rental growth is crawling along at its slowest pace on record, and well below its 10-year average levels. The 10-year annual rate of rental growth is currently higher than growth over the past year across each capital city.

“Additional accommodation being provided by the current building boom along with record high levels of investment purchasing is adding substantial new dwelling supply to the market at a time where the rate of population growth is slowing,” he said.

“At the same time as rental growth is slowing, the rise in home values is pushing rental yields lower. Across the combined capital cities gross rental yields sit at record lows of 3.4 per cent for houses and 4.3 per cent for units.”

Mr Kusher said the ongoing decline in yields is largely being driven by Sydney and Melbourne where rental growth is sluggish and value growth is strong.

As a result both cities currently have record-low rental yields, he said.