Rental Costs in Australia Falling

October 25, 2016

Moving to Australia is getting cheaper as the cost of renting a home is declining.

The cost of renting a home in Sydney or Melbourne has risen faster than in other capital cities but now rental cost growth is slowing even in Sydney.

Rental growth though is also continuing to slow in other capital cities, with deceleration the greatest in areas where new dwelling supply is coming online.

Slowing rental growth will continue to put downward pressure on core inflation, posing a challenge for the RBA in returning inflation to the 2-3% target band.

In the past week, mostly better than expected US economic data, along with a spate of Fed speeches, has pushed up expectations for a December rate hike to 76% from 56% in late September.  The RBA is concerned over the impact that new housing supply would have on inflation over the next two years.

The significant increase in apartment supply is likely to weigh on rental growth further. With likely further softness in rents, the RBA will find it difficult to keep inflation within its’ target.

According to the CPI measure of rents, growth slowed to an annual pace of 0.7%, with rents actually declining sharply in Perth (-5.2% y/y) and Darwin (-6.4% y/y).

Rental growth in Brisbane is also very subdued, growing at just 0.5% in annual terms.

In Sydney, growth was 2.2% and in Melbourne 1.4%.

Data from the REIA suggests rental growth has slowed further with rents actually declining in most capital cities apart from Canberra.

Rental growth in Sydney has also slowed according to this data with rents actually unchanged for the past two quarters.

Rental growth has a close relationship to population growth and new building approvals. There are now 1.4 new persons per new dwelling being approved, the lowest ratio since 2005 and contributing to slower rental growth.

Narrowing down to the suburb view, it is clear rents are slowing in areas where a large amount of dwellings is coming online. After contributing 0.2% percentage points to quarterly inflation in the June quarter, early rental data points to rents contributing less than even this in the September quarter.


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