Rents rising to new record highs is one of the major impacts of the COVID-19 pandemic on the Australian housing market over the past two years.
While there was a mild decline in rents after a few months from the onset of the pandemic, a swift recovery followed, with strong gains persisting through 2021.
CoreLogic head of research Eliza Owen said several factors have driven this surge, one of which was the tight rental supply due to the lack activity from investors between 2017 and mid-2020.
“Rental supply may also have been eroded through the rise of rental services like Airbnb, which have enabled property owners to pivot to the short-term rental accommodation market,” she said.
“This latter trend may have been particularly prevalent in tourism destinations across Australia, some of which have flourished amid a rise in domestic tourism in the past two years.”
Meanwhile, the more recent investors who bought long-term rental properties at high prices could also be cited as a driver of rising rents.
Over 2021, the annual rent growth reached its highest levels since 2008 — in fact, the median advertised rents since March have increased by $30 per week to $470.
“Through the pandemic, there has been a clear shift in rental preferences towards lower density housing options, where the upwards pressure on rents has been more substantial,” Ms Owen said.
“This trend has evolved over the past year, with rental affordability gradually deflecting more demand towards higher density rental options where the cost of renting is more affordable.”
However, gross rental yields declined, due to the gains in purchase price outpacing the growth in rents.
As rents rise, rental yields fall
Gross rental yields have fallen from 3.8% in March 2020 to a record low 3.21% as of February 2022.
“As housing growth has started to slow, this record-low gross rent yield figure appears to have begun stabilising,” Ms Owen said.
While housing value growth appears to be already losing steam, it cannot be denied how strong the past two years are — housing values rose by 24.6% between the end of March 2020 and February 2022.
The total value of residential real estate hit $9.8 trillion by the end of February, a strong increase from $7.2 trillion at the onset of the pandemic.
Over the period, the median dwelling value increased to $728,034, up by $173,805.
“The current housing market upswing has delivered extraordinary value gains, providing a significant wealth boost for homeowners, but larger hurdles to enter the market for non-homeowners,” Ms Owen said.
“Arguably, there are more headwinds than tailwinds now stacked against continued growth in the property market, with the potential for sooner than expected cash rate increases, affordability constraints, and weakening consumer sentiment slowing demand.”
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