The Latest CoreLogic’s Rental Market Update
3 min read
Key takeaways
The national rental index increased by 0.1% over the September quarter, the smallest change over a rolling three-month period in four years. This is likely to be a result of easing net overseas migration and rental affordability pressures forcing a restructuring of demand.
The median income household would require around a third of their income to service the median rent value across Australia in June.
The national home value index has risen more on a monthly basis than the rental index, placing some renewed downward pressure on rental yields. The gross rental yield has reduced to 3.68%, the lowest since December last year.
Rental growth has peaked, and demand is rebalancing. Delays in the construction process have seen some aspiring owners staying in the rental market for longer than planned, and investor activity has lifted to comprise around 38% of new lending.
The national rental index increased by just 0.1% over the September quarter, the smallest change over a rolling three-month period in four years.
Sydney (-0.5%), Brisbane (-0.2%) and Canberra (-0.8%) all recorded a reduction in rents over the quarter and rental growth is clearly losing steam in most other capitals.
Melbourne and Perth both recorded a 0.3% rise in rents through the quarter, a sharp slowdown from a year ago when the quarterly trend was up 2.2% and 2.3% respectively.
The slowdown in rental growth is likely to be a factor of both easing net overseas migration alongside rental affordability pressures forcing a restructuring of demand.
The latest demographic trends from the ABS showed net overseas migration reduced by 19% from the record highs in the first quarter of 2023.
The March quarter of 2024 saw 133,800 net overseas migrants arrive in Australia, 31,700 fewer than a year prior, helping to take some pressure off rental demand.
Our affordability metrics indicated that the median income household would require around a third of their income to service the median rent value across Australia in June.
It wouldn’t be surprising if the average household size has continued to increase as group households and multi-generational households become more common in the face of high rental costs.
As rental growth eases more visibly than value growth, we have now seen five straight months where the national home value index has risen more on a monthly basis than the rental index, placing some renewed downward pressure on rental yields.
Nationally, the gross rental yield has reduced to 3.68%, the lowest since December last year.
With variable mortgage rates for new investors averaging around 6.6% against a backdrop of below-average yields, most recent investors are likely to be incurring a cash flow loss on their investment properties unless they have relatively low levels of leverage.
Rental growth looks to have well and truly peaked as demand and supply rebalance.
On the demand side, slowing net overseas migration and a gradual trend towards larger households should help ease demand-side pressures.
Additionally, delays in the construction process have seen a portion of aspiring owners staying in the rental market for longer than planned.
As the backlog of dwellings associated with the HomeBuilder grant moves to completion, we should see some further diminishment in rental demand.
Although rental supply remains constrained, investor activity has lifted to comprise around 38% of new lending.
The pick-up in investor activity could be a factor in supporting rental supply.
