According to CoreLogic, rents fell sharply in April as the COVID-19 lockdown took full effect:
Rental markets have shown a broad based weakening through April as the combined pressures of higher supply and lower demand flow through to lower rents. Rents were down over the month across seven of the eight capital cities, with the largest falls in Sydney (-0.7%), Canberra (-0.7%) and Melbourne (-0.5%).
Perth, where rental conditions have been tightening for several years, was the only capital city to see a lift in rents over the month (+0.1%). Mr Lawless said, “Rental markets were already soft leading into COVID-19, with annual growth of just 1.0% across the combined capital cities over the twelve months ending March. The latest data for April has dragged the annual change in capital city rents to just 0.4%.”
He said, “Rental markets are likely to show much weaker conditions over the coming months due to higher supply levels. The conversion of short term rentals to permanent arrangements, and the large number of off-the-plan units that have recently completed or still under construction are adding to rental supply.”
“On the demand side, occupancy rates are being negatively impacted by a stalling in overseas student numbers, as well as many domestic students studying remotely, and a stalling in international migration. Demand has been further impacted by the weak labour market conditions associated with sectors that are also synonymous with renters: casual employees, accommodation & food service workers and arts & recreation workers.”
Unsurprisingly, unit markets have shown a weaker rental performance, with capital city unit rents down 0.9% in April compared with a 0.3% drop in house rents.
With rents falling while housing values hold relatively firm, rental yields have slipped over the month, reaching a new record low of 2.92% in Sydney.
Rents will likely fall sharply over the next year due to:
Sharply rising unemployment and falling household incomes;
Rising rental stock as the big construction pipeline is finished, alongside thousands of Airbnb’s hitting the long-term rental market; and
Falling immigration, specially into Sydney and Melbourne.
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This portends a rough period ahead for property investors given property prices will also fall.
Leith van Onselen is Chief Economist at the MB Fund and MB Super. He is also a co-founder of MacroBusiness.
Leith has previously worked at the Australian Treasury, Victorian Treasury and Goldman Sachs.
