6 Oct 2016 AFR / SMH
Rental growth in major capital cities has plummeted and experts are predicting falls in many areas within two years.
The Reserve Bank of Australia also warned on Tuesday – when the cash rates was also held steady at 1.5 per cent – that “growth in rents is the slowest for some decades”.
The rental growth for Sydney has been hovering around the 2 per cent mark since 2013, while mining centre Perth has had falling rents, UNSW Centre for Applied Economic Research said.
Removing the premium from quality improvements which is worth about about 1 per cent a year, then Sydney’s rents were growing at closer to 1 per cent, the centre’s Dr Nigel Stapledon said.
Melbourne too experienced annual rent growths of a similar magnitude in the last two decades but now post an annual growth of 2.3 per cent at June.
At the height of the mining boom, Perth had a whopping 13 per cent annual growth in rents in 2008, today rents in the WA capital are falling.
“If you look at history, there are periods when it has gone into negative territory…and given the volume of supply coming into the market, I would be pretty confident that such a period lies ahead,” Dr Stapledon said.
But SQM Research’s Louis Christopher said rental growth in Sydney or Melbourne would not go to zero. Rental growth in certain inner city areas where supply is cranking up might keep falling, but areas in the middle and outer rings of the CBDs would remain stable.
“Supply in dwellings will increase but not in all areas. For example, there will not be an oversupply in Richmond (far northwest Sydney),” he said.
“But in the inner ring of Sydney, it will be a tenants market in 2018… there will be bargains over the CBD and inner rings.”
Both Sydney and Melbourne CBD are experiencing strong dwelling construction and with the prospect of an oversupply in Melbourne and Brisbane renters would soon be on the winning end of a lease.
Even strong suburbs in inner city Sydney and Melbourne would be affected by the “rental fall” contagion, both Mr Christopher and Mr Stapledon agreed.
“So if Epping rent falls, yes, so will North Sydney and Mosman,” Mr Christopher said.
In its August Rental Index, Corelogic also confirmed the combined capital city rental rates have fallen by 0.5 per cent over the past year. At the same time a year ago, capital city rental rates had increased by 0.7 per cent.
The combined capital city median weekly rent is currently $481, which is the lowest it has been since November 2014.