One of the more credible arguments for falling house prices last year after the CV-19 shock was that new supply would continue to come online while population growth (or at least a sizable chunk of it) ground to a halt as overseas migration ceased amid lockdowns.
Yet, rental indicators haven’t been a disaster by any means. There have been some localised pockets of distress – in the likes of Sydney and Melbourne CBDs around international student hubs, but no broad crunch for landlords. Vacancy rates have kept generally low – particularly outside Sydney and Melbourne. The internal migration trends (tree and sea changes) have led to crunches in regional towns, pricing many locals out of the market.
Private sector data provider CoreLogic indicated rents surged by 3.2% in the March quarter (4.1% in regional markets and 2.9% in combined capitals). Rental growth has been explosive in the formerly morose Perth and Darwin markets, however it was strong across all capital cities, even Melbourne (1.0% quarterly increase) and Sydney (2.8%). So these migration reliant markets, with an increased exodus, have seen strong price and rental growth! What gives? Wage growth is still painfully weak and new residential building hasn’t fallen off a cliff just yet.
Enter official CPI data from the ABS for the March quarter. Broad inflation increased by 0.6% on the quarter to be just 1.1% higher than in March 2020. No pressure on the RBA to wind back its stimulus just yet.
However, in the case of rents, at the national level, they were – wait for it – unchanged! And compared to the March 2020 quarter, the average renter was getting a 1.4% discount if these numbers are to be believed.
A remarkable difference to the 3.2% quarterly increase by respected CoreLogic.
SQM Research shows rents at the national level trending higher now, although Sydney and Melbourne have been weak; particularly the latter. Melbourne rents have been falling this year according to SQM, which would make sense given the aforementioned population trends. As a result, there’s a bit of uncertainty as to how exactly rents are moving.
What seems reasonable to conclude is cities ex Sydney/Melbourne are seeing rental increases combined with strong price appreciation due to other factors as well (lower rates, fiscal incentives and easier lending practices).
An extremely hot property market does not seem likely to abate any time soon!