According to CoreLogic, the rental markets are experiencing increased diversity, but vacancy rates remain tight in most regions. Major capitals are seeing accelerated rental growth in the unit sector, while smaller capitals are experiencing slower growth in house rents.
In Sydney, the annual growth rate for unit rents (18.1%) is almost double that of houses (9.4%). This trend is consistent across other capital cities, with unit rents rising at a faster pace than house rents. In fact, unit rents in Sydney and Melbourne reached record highs in the March quarter with increases of 5.3% and 4.3% respectively.
CoreLogic's Research Director, Mr Lawless, suggests that two factors may be driving this trend. Firstly, tenants may be seeking more affordable options in medium to high density areas due to stronger growth in house rents during the pandemic. Secondly, the surge in overseas migrants and students may be driving demand in inner city areas close to universities, transportation, and amenities.
While capital city house rents have increased by 24.8% since the onset of the pandemic in March 2020, unit rents have increased by a smaller 19.5%, but they are catching up quickly.
As rental affordability becomes more challenging, CoreLogic predicts a reversal of the trend towards smaller households during the pandemic, with group households reforming. Tenants may also be maximizing their tenancy by sharing rental costs among a larger number of tenants and sacrificing spare rooms or home offices. CoreLogic data also indicates an increase in rental hold periods, suggesting that tenants may prefer to hold onto their existing lease rather than searching for a new rental.
However, not all cities and regions are experiencing rent increases. Darwin and ACT have seen declines in rents for houses and units over the March quarter, with Canberra recording an annual reduction in house rents of -0.8% over the past 12 months, after historically being one of the most expensive rental markets in the country.