Job security, income growth and reduced first home buyer incentives are all applying upward pressure on the rental market.
This pressure will cause rents to increase strongly through 2010 and beyond.
Five interest rate rises and improving economic conditions point to a year of rising rents, according to Australian Property Monitors’ Rental Price Series Quarterly Report.
After a stagnant 12 months that saw flat rental growth in many markets across the country, the average rental growth across capital cities in the March 2010 quarter rebounded to 1.5 per cent.
This is compared with a total average of just below two per cent for the whole of 2009, as the table below illustrates.
Changes in rents for houses
Sydney recorded no increase in median rental prices for houses in the March quarter.
Melbourne, however, has experienced the first quarter of rental growth in 18 months, with a rise of nearly three per cent.
Brisbane aligned with the national average, experiencing 1.4 per cent growth in houses.
Adelaide saw strong growth at 3.1 per cent in the quarter and 6.5 per cent over the year, the second highest of any capital city.
Perth, like Melbourne, experienced a quarterly rise of 2.8 per cent.
Hobart was flat over the quarter and the year, with no increase.
Darwin saw the most dramatic increase, with rents growing 10 per cent in the quarter for houses and nearly 15 per cent for the year.
Canberra was flat over the quarter, whilst experiencing 4.8 per cent over the last 12 months.
As landlords begin to feel the pinch of recent interest rate rises, with the prospect of more to come throughout the year, landlords are more prepared to pass these costs on to renters in 2010.
According to Matthew Bell, Economist for Australia Property Monitors:
“Considering national rents rose by more in the March quarter than in any quarter in 2009, it is clear that the factors that kept a lid on rents in most cities during the last 12 months are no longer apparent.
Over the last five years, rental growth for most of the major capitals averaged six to seven per cent for houses and seven to 10 per cent for units.
As the year progresses and the economy continues to improve, rents are expected to exceed these levels of long-term annual growth.”
This growth is being fuelled by the success of Australia in ensuring job security over the recent past, plus income growth has returned.
In addition, the historically low interest rates and the First Home Owner Boost that made moving from renting to ownership so attractive in 2009 are now gone.
This means that demand for rental properties is on the increase. This, along with the increasing interest rate costs being faced by landlords, means strong rental growth is expected over the year and beyond.