Sluggish rents on the rise, yields holding strong

The capital city with the highest median rent is Sydney, with a rise of 0.5 per cent over the quarter to $582.

It is followed by Canberra, with a rise of 2.3 per cent to $528; Darwin, which saw the only decline of 0.3 per cent to $474; Melbourne, a rise of 1.2 per cent to $442; Brisbane, a rise of 1.2 per cent to $436; Hobart, a rise of 5 per cent, the highest cap to $410; Perth, a rise of 1.7 per cent to $377; then Adelaide, a rise of 1 per cent to $374.

The report mentioned that despite the rise, the speed of growth is slowing down, comparing the overall quarterly rise of 1.1 per cent with 2017’s first quarter of 1.5 per cent.

“It should also be noted that the first quarter of the year is typically the strongest for rental growth,” the report said.

The higher rents in Sydney and Melbourne can be attributed to the housing affordability issues these capital cities face.

“Supply additions have been significant over recent years as has demand for housing from investors, but affordability remains stretched and population growth remains substantial, which is creating competition for rental stock as new households moving to these cities look for accommodation and lower income households remain locked out of home ownership instead having to rent,” the report stated.

In terms of rental yields, however, Darwin was the standout, with yields currently at 5.83 per cent.

Hobart followed at 5.01 per cent, Canberra at 4.55 per cent, Brisbane at 4.40 per cent, Adelaide at 4.28 per cent, Perth at 3.92 per cent, Sydney at 3.20 per cent and Melbourne at 2.93 per cent.

The yield underperformance of the two largest markets, Sydney and Melbourne, indicates that investors are most likely utilising negative gearing, and because of the low yields, investors are expected to begin investing in other capital cities.

Looking to the future, the report claimed that rental growth will continue to surpass value growth, and yields will remain strong over the next few quarters.