Smart Australians are looking for alternative accommodation to escape the rental crisis. Image: NCA NewsWire / Andrew Henshaw

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At a national level, rents are barely increasing and are even beginning to fall in some capital cities, providing relief to tenants after several years of very strong price growth and historically low vacancy rates.

CoreLogic’s latest rent index rose just 0.1 percent in July*, marking the lowest monthly increase in national rents in four years. In Sydney and Brisbane, rents fell 0.1 percent, marking the first reduction in both major cities since 2020. Rents in Hobart also fell by 0.3 percent in July.

Growth in weekly rents has continued over the past year, but at a slower pace, particularly in the apartment market. In Sydney, for example, annual apartment rent growth has fallen from 17.9 percent in May last year to 6.6 percent today.

Finally, there is some good news for struggling tenants. Image: NCA NewsWire / Andrew Henshaw

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6.6 percent is still high by historical standards. In fact, it is more than double the 10-year pre-pandemic average of 2.7 percent. But at least we are seeing the market losing some momentum, which will certainly make life easier for the one-third of Australians who rent.

CoreLogic attributes the slowdown in rental growth to a peak in net migration from abroad in the first quarter of last year. A big part of the post-pandemic migration surge was international students. They like to rent apartments downtown because that’s where a lot of universities are. So we saw a surge in demand for that type of property, and now that demand is waning.

There’s another interesting trend that may be putting a bit of a dent in the rental market. CoreLogic took a closer look at the statistics and found that rental prices for large properties with more bedrooms are increasing faster than for small properties with just one or two.

For example, weekly rents for one- and two-bedroom homes rose 7.6 percent nationwide in the 12 months to June this year, while rents for homes with five or more bedrooms rose 8.7 percent.

SMART MOVE THAT MAKES LIFE EASIER FOR AUSTRALIAN TENANTS

Meanwhile, rental growth for studios and one-bedroom apartments has declined significantly. Annual growth has fallen from 16.8 percent in April last year to 7.1 percent today.

According to CoreLogic, this may reflect more renters grouping together to form shared apartments. Multigenerational families may also do this.

This is a reversal of pandemic trends that saw many inner-city apartment communities disband. As people began working from home, they decided they wanted their own space and could afford to live alone if they moved to the suburbs. And it wasn’t just renters who made this move.

Shared apartments are back. Photo: Rebecca Michael.

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Many people who owned a home in the inner city chose to move to the outskirts of the city or to rural areas where they could buy a large home in a good residential area with their own home office – maybe even with a pool.

This population dispersion contributed to a reduction in average household size across the country, which the Reserve Bank directly linked to rising rents and property values ​​in recent years.

All this is good news for renters after a difficult few years.

Increasing investor activity

Meanwhile, rents have started to rise again across the country and these better returns are helping landlords to cope with higher interest rates on their investment loans and higher inflation, which is driving up other costs such as council taxes, water and insurance.

New investor activity in the market is currently increasing. The Australian Bureau of Statistics reported that 37.1 percent of new loans went to investors in May, the highest percentage in seven years.

We certainly need more rental housing on the market to keep pace with population growth, so this is a welcome development. Property investors typically value capital growth over rental yields, so the slowdown in rental price growth over the past year does not deter them.

Gross rental yields for all property types are above 3 percent in Sydney, Melbourne, Brisbane and Adelaide and above 4 percent in Perth, Hobart, Canberra and all regional markets.

This means that at today’s interest rates, rents do not cover the repayment of investment loans or the ongoing operating costs that landlords have to pay. Despite this, we are seeing strong activity from investors, suggesting that they are confident of solid capital growth over the medium to long term.

*Hedonic Rental Index from CoreLogic

**John McGrath is Managing Director and CEO of McGrath Estate Agents.