Booming housing prices push rental yields to an all-time low

• Australia’s eye-watering home price increase has not been matched by growing rentals, resulting in continuous yield compression
• CoreLogic data shows that national home prices have increased by 18.4 per cent but rentals have not been able to keep pace, increasing by just 8.2 per cent
• According to SQM, the national weekly rent is $538 per week for houses and $398 for units
• Gross rental yields have dropped to an all-time low of 3.32 per cent across the country

Australia’s eye-watering house price growth other the last 12 months has not been matched by rising rents, resulting in ongoing yield compression.

CoreLogic data shows that national home prices have increased by 18.4 per cent but rentals have not been able to keep pace, increasing by just 8.2 per cent.

This is, however, the largest rise in rents since 2008.

The national residential rental vacancy rate remained tight at only 1.7 per cent in July 2021, according to SQM Research.

According to SQM, the national weekly rent is $538 per week for houses and $398 for units.

There is still a significant disparity between the rate of growth in house rents and unit rentals, with house rents rising at nearly double the rate of unit rents (9.9 nationwide for houses vs. four per cent for units in the 12 months ending August).

The disparity between growing house rentals and rising unit rents is particularly noticeable in Sydney and Melbourne, where unit markets have grown at a far slower pace. However, most capital cities are seeing a similar trend, albeit to a lesser extent, CoreLogic data shows.

Gross rental yields have dropped to an all-time low of 3.32 per cent across the country.

Rental yields aren’t simply at historic lows in Sydney and Melbourne anymore, with 3.99 per cent gross rental yields in Brisbane, 4.01 per cent in Hobart and 3.99 in Canberra also falling to fresh record lows in August.

“The weaker trend in unit rents across Australia’s two largest cities is likely a reflection of their greater exposure to temporary overseas migrants as a source of rental tenancy, especially foreign students who would normally underpin inner city high rise rental demand,” CoreLogic research director TimLawless said.

“The sharp drop in demand due to closed borders has been exacerbated by high supply levels as both cities come out of an unprecedented surge in inner city apartment construction.”