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Falling vacancy rates exacerbate challenges
about 1 year ago
Falling vacancy rates exacerbate challenges

National rents increased a further 0.7% in September, taking rents 6.4% higher over the first nine months of the year and 8.4% higher over the past 12 months. The rise came as vacancy rates dipped again, dropping to 1.0% across the capital cities and 1.2% across regional Australia, both a record low for the series which commenced in 2006. Across the capital cities, vacancy rates range from just 0.3% across Adelaide to 2.5% across Hobart.

Prior to COVID-19, the average capital city vacancy rate was 3.1%. With many First National Real Estate experiencing sub 1% vacancy rates, we’re encouraging prospective tenants to register with us in advance, so we can let you know the moment a new home becomes available.

 

Yields improve in Brisbane and Adelaide

Firstly, there’s been a slight dip in rental yields in Sydney and Melbourne. Despite the high demand, an influx of newly built apartments and existing homes entering the rental market has contributed to this decline. However, it’s essential to note that these markets still offer robust long-term growth prospects. In contrast, Brisbane and Adelaide have seen an uptick in rental yields, making them increasingly attractive options for investors. Perth is currently stable but shows promise due to increased interstate migration and a booming resources sector.

 

Legislative change

Various states are tightening regulations around renters’ rights, which could have implications for landlords. For example, Victoria recently enacted laws that offer greater protections to renters, including limitations on rental increases and requirements for urgent repairs. While this is aimed at making rental markets more equitable, landlords will need to be well-versed in these changes to manage their properties effectively.

While the rental market remains strong in most capital cities, slight yield variances and legislative changes mean that landlords need to be more adaptive and informed than ever.

 

Pace of rental growth still easing

Although vacancy rates have tightened, the pace of rental growth is easing in most markets. Across the combined capitals the quarterly rise in rents was 1.9% in the September quarter, down from 2.7% in the June quarter and 2.9% through the first quarter of the year. Annual rental growth has peaked, but at 10% over the past 12 months, remains extremely high.

The slowdown in rental growth may seem counter intuitive at a time when vacancy rates are tightening, however, this is probably a signal that rental affordability constraints are forcing a structural change in household formation as group rental households re-form and renters seek to maximise their tenancies in an effort to spread rental costs across a larger household. Data released by the RBA earlier this year clearly shows a rise in average household size following a drop in the average number of persons per household during the worst of the pandemic.

As rental growth slows and housing values rise, the trend in gross rental yields has once again reversed. The past five months has seen dwelling values rise at a faster pace than rents, sending gross yields mildly into reverse.

 

Gross rental yields nationally chart.