Slow rental growth turning tide toward tenants

Rental growth has fallen to its lowest level in a decade, according to a major bank economist

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Changing housing market conditions mean the tide is turning in favour of tenants.

CommSec chief economist Craig James said the fact that rental growth has fallen to the lowest levels in ten years should be a warning sign to investors.

According to the latest figures from Corelogic RP Data, combined capital city rents increased by just 1.8% over the past 12 months.

House rents increased by 1.7% over the past year while unit rents increased by 2.4%.

James said demand has eased and supply is lifting, which means more competition for landlords and, in turn, more favourable conditions for renters.

“If 2014 was the year of the home seller, 2015 may be the year of the tenant.”

Further, as dwelling prices continue to grow – albeit at a slower rate - rental yields continue to get lower.

In December 2014, rental yields across the combined capitals were 3.7% for houses and 4.5% for units.

Over the same period in 2013, rental yields across the combined capitals were 3.9% for houses and 4.6% for units.

However, James said that the slowdown in dwelling price growth indicated value growth was returning to more sustainable levels.

While Australian home prices rose by 7.9% in 2014, the annual growth of home prices was the lowest in 14 months.

Dwelling prices rose strongly in 2014 because demand was greater than supply, but increased supply meant prices were now growing at a slower rate.

James said price growth is likely to ease to the 4-7% range in 2015.

“Annual growth in Sydney and Melbourne prices will ease most, but growth rates of home prices in other capital cities should hold up.”

It’s neither a boom nor a bust situation which means doomsayers will need to find something else to worry about, he continued.

“As a result, there will be less focus on so-called ‘macroprudential’ controls on home lending.”
 
Meanwhile, the Corelogic RP Data figures show that home prices are higher than they were a year ago across all the capital cities except Canberra (down 0.6 per cent).

In 2014, total returns on capital city dwellings grew by 12.2%, with houses up 12.6% and units up 10.0% on 2013.

James said he expected that returns on property will lift between 6-9% in 2015.

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