Rental yields currently sit at record-low levels after rents failed to grow at the same pace as house prices over the past decade.
Looking at rental growth over the past decade across the combined capital cities, data from CoreLogic RP Data show rental rates have increased by 50.7% over the period, or 4.2% per annum. This is much lower than the increase in home values, which have increased by 72%, or 5.6% per annum, over the same period.
CoreLogic RP Data research analyst Cameron Kusher says this represents a “historically weak market” for rental growth. Rental yields are now at an historic low of 3.5%.
Perth and Hobart are the only cities in which yields are now higher than they were 10 years ago while in Brisbane they are unchanged over the period.
Melbourne and Darwin have seen the greatest softening in gross rental yields over the past decade. Melbourne, where gross yields are the lowest of any capital city, have slipped from 4.2% ten years ago to 2.9% currently.
Kusher says there is reason to expect rental yields to drop further.
“With rental rates falling and yields sitting at record low levels at a time when housing construction is at its highest level on record it is reasonable to expect that rents and yields will slip further over the coming years.”
He also says the low yielding rental environment may change the focus of investors over the coming year.
“Whereas over recent years their focus has clearly been on value growth, attention could begin to become more balanced where investors place a higher degree importance on the yield profile and potential for positive cash flow,” Kusher said.