Rental rates showed no signs of lifting over July, according to the CoreLogic July Rent Index.
Rental rates fell by -0.3% over the month to be -0.6% lower over the 12 months to July 2016.
According to CoreLogic research analyst Cameron Kusher, rental rates continue to ease as supply ramps up.
In July, rental rates dropped in all cities except for Melbourne and Hobart. Combined capital city median weekly rents are currently $483 and at their lowest since December 2015. In contrast, this time last year, capital city rental rates had increased by 0.9%. Combined capital city rental rates are $467/week for units.
Mr Kusher said, “It is anticipated that the rental market weakness will persist and that on an annual basis rents will continue to fall over the coming months.”
Over the past 12 months, rental rates have increased in Sydney (+0.4%), Melbourne (+2.0%), Hobart (+6.2%) and Canberra (+1.9%). Rental rates have fallen over the past year in Brisbane (-1.0%), Adelaide (-0.5%), Perth (-9.2%) and Darwin (-15.7%). Hobart and Canberra are the only capital cities to have recorded stronger rental growth over the past year compared to the previous year.
So why are rents so low?
- We are currently seeing the softest wages growth on record;
- Relatively high levels of housing investment following record highs recently;
- Historically high levels of new dwelling construction (most of which are units which are more than twice as likely to be rented);
- Slowing population growth which creates less overall demand for housing;
- Dwelling commencements and the number of dwellings under construction at historic high levels in March 2016.
Mr Kusher said, “Once again the combination of all these factors means that landlords have little scope to increase rental rates in this current market.”
“Potentially, the changing rental market conditions will have a flow on effect for older stock, particularly units given we’re seeing so much new unit supply being added to the rental market, much of which is located in inner city locations.”
While rental rates are falling and values continue to rise, gross rental yields remain at record low levels. As a result of record low rental yields and the weakest rental market on record, those investors currently active are clearly focusing on capital growth potential.
