Rents up 10.2% nationally over 2022
National dwelling rent values increased a further 0.6% in December to be 2.0% higher through the December quarter and up 10.2% over the calendar year.
Rents rose across every broad region and housing type across the country over the past year, ranging from a 4.0% rise in house rents across the ACT to a 15.5% increase in Sydney unit rents.
While housing values have been influenced by interest rates, rental market conditions have been more closely linked to demographic trends through COVID.
Fewer people per household through the pandemic, and more recently the strong return in overseas migration, has added substantially to rental demand.
Over the coming year, high rental demand is most likely to be concentrated in Sydney and Melbourne, which have historically accounted for around two-thirds of overseas migrant arrivals.
Such strong rental appreciation has occurred alongside record low vacancy rates.
The combined capitals rental vacancy rates finished the year at 1.2%, ranging from 0.4% in Adelaide to 1.8% across Darwin.
The quarterly pace of rental growth has eased from 2.9% nationally over the June quarter to 2.0% in the December quarter.
The slowdown is likely reflective of seasonal factors as well as rental affordability pressures forcing an adjustment in rental household formation.
As renters face worsening affordability pressures, it’s logical to expect more rental demand to transition towards higher density options, where rents are generally more affordable, or for rental households to maximise the number of tenants in a rental dwelling.”
Higher density rental markets across most of the capitals have been recording a faster pace of rental growth relative to houses through the entirety of 2022, with annual growth in unit rental values reaching 14.1% this year compared with a 9.5% rise in house rents.
While rental yields are generally still below the decade average, the disparity between the recent strong rental growth and falling housing values has seen the gross yield profile recover back to pre-COVID levels, with the national gross rental yield rising to 3.78% in December.
Gross rental yields moved through record lows at the beginning of the year due to housing values rising at a faster pace than rents.
Since then, gross yields have been on a rapid recovery trajectory.
Importantly though, when factoring in the higher cost of debt since May, it’s likely net rental yields have worsened for most investors as mortgage repayments have increased more than rental income.
By Tim Lawless
Originally published by Property Update
