Rental values have fallen in a number of Australian capitals in the June quarter, as demand weakens. But widespread income loss over the same period means there has been very little improvement in rental affordability.
According to the latest ANZ-CoreLogic Housing Affordability Report, there was some tightening in the rental market last year, as investment and development slowed. But COVID-19 has changed the market dynamic, with rents in the June quarter down 1.3 per cent in Sydney, 1 per cent in Melbourne, 0.6 per cent in Brisbane and 2.3 per cent in Hobart.
Darwin and Canberra rents also fell in the June quarter, while Adelaide rents rose 0.1 per cent and Perth rose 0.9 per cent.
The Australian rental market has been relatively weak over the past five years, with rents growing by just 0.9 per cent a year. Investor participation in the Australian housing market is at its lowest point since 2001.
The report said: “It is important to note that falling rents do not necessarily mean more affordable rentals. This is because of significant income loss over the same period.”
ABS figures show that total wages paid between 14 March and 13 June fell 6.3 per cent.
According to the report, there has been a disproportionate loss of income in industry sectors where workers are more likely to be renters. Those industries include accommodation and food services, and arts and recreation services.
There is a high incidence of renting households where there is also greater workforce exposure to these industries, such as the inner city areas of Sydney, Melbourne and Brisbane.
Rental affordability, measured as the proportion of household income required to service rent, was 30.7 per cent in Sydney in March, down from a peak of around 35 per cent in 2017.
Affordability was 27.7 per cent in Melbourne (relatively unchanged over the past few years), 26.7 per cent in Brisbane, 24.1 per cent in Perth29.2 per cent in Adelaide and 34 per cent in Hobart.
Rental values fell 1 per cent in Sydney in the year to June, were flat year-on-year in Melbourne, grew 0.6 per cent in Brisbane, grew 2.2 per cent in both Adelaide and Perth and fell 0.1 per cent in Hobart.
In terms of rental supply, developer activity increased significantly from 2012 to 2017 to accommodate demand from investors. New housing finance for investment purchases peaked in April 2015 and unit approvals peaked at 123,404 in August 2016, which was 42.5 per cent above the decade average.
This contributed to a surge in rental listings and a slowdown in growth in rents.
Over the past couple of years there has been a withdrawal of investor participation in the housing market – a response to tighter lending conditions.
However, there is still an above-average level of units under construction across Victoria and New South Wales. At March this year, the number of units under construction was 18.8 per cent higher than the decade average in NSW and 24 per cent higher in Victoria.
A couple of other factors in the changing market dynamic are the closure of the border to international travellers and migrants, who tend to rent when they first arrive, and the conversion of short-term rentals, such as Airbnb, to long-term rentals.
Between March and June there was an increase in rental listing in Melbourne, Sydney and the Australian Capital Territory, while there have falls in the other capitals.
“Variations in exposure to net overseas migration and precarious work are likely leading to variations in surplus rental stocks,” the report said.
The areas experiencing the lowest levels of net overseas migration are largely small regional areas, where rental market are largely unaffected by the recent changes to migration flows.