The nation’s largest cities experienced strong falls in rental value, a new report reveals, slowing down a recovery underway in the rest of the country.
Renting a typical unit in Sydney cost $495 a week in the September 2020 quarter, according to Domain’s Rental Report, but that was a drop of $25 compared to the same period a year earlier.
A typical Melbourne unit cost about $400 a week to rent, but that was still $20 less compared to the same quarter a year earlier.
The two largest cities in the country were alone in experiencing falls in apartment rents of 4.8 per cent, contributing to the largest annual fall since Domain began keeping records in 2004.
Sydney and Melbourne account for 40 per cent of housing stock and 55 per cent of values, according to analysts. The drops in their apartment rents led to the national average falling 2.9 per cent over the September quarter, compared to a year earlier, even though rents for units in other capitals posted gains.
Houses across the nation posted much stronger results. National median house rents were $460 per week, offsetting the losses incurred as they returned to growth.
City rents affected by the pandemic
Capital cities were most vulnerable to the effects of the COVID-19 pandemic, the report found.
“Inner-city areas … are more susceptible to changes in overseas migration and international students, tourism and job losses associated with COVID-19,” Dr Nicola Powell said, senior research analyst at Domain.
“Unit rents (in Sydney) have now fallen $55 a week from peak prices in 2017 and are now the lowest in six years.”
The impact falling migration is having on the rental market has been widely recognised by economists, analysts and experts. International students and migrants are a cornerstone of the rental market, particularly in Sydney and Melbourne, they claim.
“The fall (in international students) highlights the impact on towns and regions reliant on international student demand for accommodation and spending more generally,” Craig James said, chief economist at CommSec.
“A year ago in August 2019, almost 55,000 students arrived in Australia to study. In August this year, 50 students came to Australia.”
Overseas migration plummeted in the financial year ending in 2020, according to analysts CoreLogic. About 31,000 entered the country, a drop of 200,000 when compared to the year before.
Houses posted strong gains in some states
The housing market performed well enough to offset falls experienced last quarter.
Perth posted the biggest rental gains in the housing market, growing 6.8 per cent when compared to the same quarter a year earlier. Renting a typical house cost about $370.
“This is a significant turnaround and unfamiliar territory for tenants who have been in the driving seat, following many years of falling rents,” Dr Powell said.
“The increased rental demand is largely driven by a return to Perth amid COVID-19, out-of-state mining employees relocating, and the resumption of local short-term travel.”
Perth’s strong gains were followed by Canberra houses growing 5.8 per cent and Adelaide growing 5.2 per cent over the quarter,
Rent for houses in Sydney and Melbourne similarly posted gains.
Sydney properties grew by 2.9 per cent compared to the same quarter a year earlier, pushing the typical rental cost of a house to $540.
Melbourne homes experienced an increase in rent of 2.3 per cent, pushing the cost of a typical home to $440.
Units in other states fared well too
Units in Adelaide and Perth posted strong rental gains -- of 9.7 per cent in the September quarter, when compared to the same period a year earlier -- pushing the weekly price of a typical apartment to $340.
They were followed by rental gains in Brisbane of 3.9 per cent, which push the rental price of a typical apartment to $395 a week.
But the gains in these cities were not strong enough to offset the 4.8 per cent falls posted by Melbourne and Sydney.
Nationally, rents for units fell by 2.9 per cent for the quarter, when compared to the same period a year earlier.