House rents in one out of five suburbs nationwide dropped by as much as 6 per cent in the past three months, albeit from high levels, as stretched affordability forced renters to seek cheaper options such as units, data from CoreLogic shows.
But the underlying shortage of rental supply over the short to medium term could limit the magnitude of rental declines in the coming months, said Tim Lawless, CoreLogic research director.
House rents in 19 per cent of all Sydney suburbs fell in the past three months, according to CoreLogic. Peter Rae
“Considering we aren’t expecting to see a material lift in rental supply over the short to medium term, and rental demand is likely to remain relatively high amid above average levels of net overseas migration, it’s unlikely we will see a pronounced decline in rents,” he said.
“However, with the spectacular rise in rents that has occurred over recent years, it is likely we will see more suburbs recording a reduction in the rate of rental growth, or potentially a flattening out or decline in rents as demand side pressures adjust.”
Rental values for houses fell in almost one out of five Sydney suburbs over the three months to July, while unit rents dropped in only 7 per cent of suburbs.
Hobart and Canberra recorded the largest portion of suburbs where house and unit rents declined, at 92 per cent and 87 per cent respectively. The falls were sparked by falling demand and a marked increase in rental supply in the past year.
Across the combined capital cities, 15 per cent of all suburbs posted a drop in quarterly rent, smaller than the combined regionals where house rents declined in 29 per cent of all suburbs.
Meanwhile, unit rents in 12 per cent of all suburbs nationwide declined during the same period.
“Although we aren’t seeing much evidence of a rise in rental supply, there are some indications that rental demand is starting to evolve as renters look for ways to manage high rental costs and net overseas migration moves through a peak,” Mr Lawless said.
“Renting households are starting to re-form to manage rental costs as rental increases significantly outpace growth in incomes.”
Nationally, rents increased by 2.1 per cent over the past three months, which is substantially higher than the previous decade average at 0.4 per cent for this time of the year, although slower than the 3.2 per cent quarterly increase at the peak, according to CoreLogic.
“Renting isn’t becoming more affordable, at least from a macro-perspective,” Mr Lawless said. “With wages growth trending at 0.8 per cent through the June quarter, rents are rising at nearly three times the pace as wages.
“Many renters are likely hitting a ceiling on how much they are able, or willing, to pay in rent.”
This is evident in Sydney where the sharpest rental declines were recorded in the most expensive areas such as the eastern suburbs.
In the past three months, house rents in Rose Bay, Vaucluse and Woollahra have dropped by 5.2 per cent, 4.9 per cent and 4.7 respectively. But even with those declines, weekly rents were still sitting at $2223, $2649 and $1816 respectively.
The trends were different in Melbourne, where the weakening rental markets were concentrated on the Mornington Peninsula such as Balnarring, Blairgowrie and McCrae, where house rents fell between 3.9 per cent and 4.2 per cent.
“The peninsula isn’t the most expensive region in Melbourne, but it is the area that recorded the most significant rise in rents through the pandemic to date,” Mr Lawless said.
Melbourne-based real estate agent Geoff White of Barry Plant said the large increase in apartment rents in the past year had also made them unaffordable, causing a rise in vacancies.
“We’ve started to see a shift in the inner-city apartment market in late June where people are starting to vacate because they want to share accommodation to manage their costs,” he said.
“As a result, rents are not rising as fast and in some cases even falling because landlords are forced to meet the market.
“Just last week, we had to drop the asking rent for an apartment we were managing from $2000 a week to $1750 to get it rented. Tenants are a bit more selective about what they’re moving into and most don’t want to pay higher rent.”
Sandy Bay and North Hobart racked up the largest decline in house rents in Hobart at 5.8 per cent and 5.2 per cent respectively, while Chapman and Farrer in the ACT dropped by more than 3 per cent.
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