Australia’s property market has skyrocketed lately, with much of the attention focused on rising house prices. But not to be outdone, the rental market is also seeing breaking records across the board, with historically high and low vacancy rates, and surging rental rates. So is it time to buy and leave rental payments in the dust?
What’s happening in the rental market?
COVID has exacerbated the wide diversity of Australia’s rental conditions. CoreLogic’s Rental Review for the March quarter found national rental rates increased by 3.2%, the largest quarterly increase in the index since March 2007. However, much of this growth was driven by Perth, Darwin, and the regions, with Sydney and Melbourne’s markets still suffering.
Combined regional market rents rose 4.1% in the March quarter, while combined capital rents increase by 2.9%. Regional units saw the highest quarterly rental growth of 4.8%, compared to just a 2% rise in the capital city units. Regional houses saw rents rise by 4% while capital city house rents were up 3.3%. Houses and units in Darwin saw the strongest growth in rental rates over the quarter, up 8.2% and 7.0% respectively. Canberra was not only the most expensive market to rent a house across the capitals but also the most expensive capital city unit rental market in the quarter at $513 a week. Canberra’s median rent sat at $612, well ahead of the second most expensive capital, Sydney at $570, followed by Darwin ($519), and Hobart ($486). Darwin had by far the strongest gross rental yield at 6.21%, followed by Hobart (4.50%), and Canberra (4.43%).
The diversification of the market is further evidenced through vacancy rates. Nationally, the vacancy rate fell in April to 1.8% and now sits below its pre-pandemic level. However, Melbourne’s vacancy rate is 4.2% while Sydney’s is 2.9%. In other capitals, the vacancy rate is at the other end of the spectrum. Hobart has a vacancy rate of 0.5%, Adelaide and Darwin 0.6%, and Canberra 0.8%.
Further extremes can be seen when diving into the suburbs. Melbourne City had a vacancy rate of a whopping 10.2% in April, while Sydney’s Auburn and Parramatta had a 4.8% vacancy rate. At the other end, Brisbane’s Capalaba had a vacancy rate of just 0.2%, while Perth’s Wanneroo was not much better at 0.3%.
So why are Sydney and Melbourne such a different rental story to the rest of the country? The nation’s two largest cities have been disproportionally affected by international border closures and lockdowns. Both cities see massive amounts of migrants arrive each year, with the larger majority of these migrants starting their life in Australia with a rental property. The lack of international students, who also rent, paints a similar story.
Lockdowns and restrictions have also worst affected industries like hospitality, retail, and the arts. These industries typically rent rather than buy property and with many losing income, have been forced to move out of accommodation to cheaper areas or back in with family. Meanwhile, the rest of the capitals and the regions have benefitted from massive interstate and intrastate migration.
The working-from-home phenomenon has seen many people move to locations with a better work/life balance, as people can work anywhere remotely. However, this has been a popular move, and demand is far outstripping supply, forcing vacancy rates down and putting upwards pressure on rents.
Is it time to buy?
House prices have been sharply rising this year but the rate of growth slowed in April and is forecast to continue that trend. Helping prospective buyers is the fact that interest rates are the lowest they’ve ever been, meaning in some cases it may be cheaper to buy than rent.
Whether it’s time to buy comes down to your location and personal circumstances. Keep in mind, buying your own home gives you greater freedom to do with the property what you want, while also building up equity.
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