The monthly pace of rental growth picked up a little in January, with national rents up 0.7% compared with a 0.6% rise in December, but they still remain well below the peak monthly rental growth rate from May 2022 (1.0%), according to CoreLogic.
The rise in the pace of rental growth was centered in the capital city markets, where monthly rental growth lifted from 0.6% in December to 0.8% in January. Growth in rents across the combined rest-of-state areas reduced from 0.6% in December to 0.4% in January.
Over the rolling quarter, national rents rose 2.1% which was higher than Q4 last year (2.0%) but down from a recent high of 3.2% over the three months ending March 2021.
In Melbourne, homes priced below $400 per week have declined dramatically over the past 12 months, and locally only 20% of rental property available through First National Real Estate Neilson Partners is priced at $400 per week or below, eliminating a vast number of potential renters as they further feel the impact of rising cash rates and inflation.
Table from corelogic.com.au
RATE OF GROWTH IN HOUSE RENTS V GROWTH IN UNIT RENTS
After recording substantially larger increases through the worst of the COVID-19 pandemic, the rate of growth in house rents is generally easing in most regions, reflecting a transition of demand towards more affordable, higher-density types of rental stock.
In contrast, unit rents have seen a surge in rental growth over the past year.
This can be attributed to a combination of affordability pressures driving more rental demand towards cheaper rental options, and a possible reversal in rental preferences as renters once again seek out housing options closer to centers of amenity such as the CBD and transport hubs.
PropTracks Cameron Kusher says Melbourne's rental crisis is likely to worsen over the next 12 months however he expects to see conditions ease in regional Victoria as those who fled to the country during the pandemic return to Melbourne.
The rental market is expected to worsen over the next 12 months
OVERSEAS STUDENTS RETURNING
A resurgence in overseas student numbers is likely to add to rental demand over the coming months, especially in light of the recent policy announcement in China where academic degrees and diplomas awarded from online studies will no longer be recognised.
40,000 Chinese students are expected to return to Australia and compete with other would-be renters to secure accommodation, and not just near by universities.
With overseas student numbers surging, it is likely inner-city rental precincts and suburbs close to universities, especially those in Melbourne and Sydney, will see a further tightening in vacancy rates and upwards pressure on rents.
Inner Melbourne rents are up almost 30% over the past 12 months and inner Sydney rents are more than 20% higher than this time last year.
Gross rental yields have continued to trend higher, rising from a historic low of just 3.21% in February 2022 to 3.85% in January 2023. The 64-basis point recovery over the past 11 months, has seen gross yields rise above the levels recorded at the onset of COVID-19 in March 2020 (3.76%).