As the real estate landscape continues to evolve, it's essential to stay abreast of the latest trends shaping the market. According to recent data from CoreLogic's hedonic rental index, April saw a notable uptick in rental prices across Australia's combined capital cities. Regional areas experienced a modest increase of 0.5%, while the combined capital cities witnessed a more substantial 1.1% rise. Notably, unit rentals surged ahead, outpacing the growth in house rentals.
In April, unit rents in the combined capital cities soared by 1.6%, compared to a 0.9% increase in house rents. This trend isn't new; since early 2022, unit rents have been on a steady incline, surpassing the growth rate of house rentals. What's driving this surge in unit rents? According to Mr. Lawless, CoreLogic's Research Director, several factors come into play.
Rental affordability is a significant factor. In early 2022, the price gap between unit and house rents was around $70 a week. However, with unit rents rising at a faster pace, this gap has narrowed to just $20 a week by April. Additionally, there's increased rental demand from overseas migration, particularly from students. Inner-city areas and precincts near universities and transport hubs witness a higher density of rental accommodation, driving up demand.
A shortage of new unit supply further exacerbates the situation. Since 2018, medium to high-density dwelling approvals have remained below average, setting the stage for a potential undersupply in the coming years.
The rental market's growth trajectory is particularly pronounced in Sydney, Melbourne, and Perth. Sydney leads the pack with unit rents appreciating by 5.8% over the past three months, followed closely by Melbourne at 5.0% and Perth at 4.9%.
Looking ahead, rental growth is expected to persist, with vacancy rates remaining at record lows across most regions. Until rental demand and supply reach a more balanced equilibrium, rents are likely to continue their upward trajectory. Unfortunately, there's no immediate relief in sight for renters, as supply constraints persist and migration levels remain high.
Shifting gears to the broader housing market, it's evident that Australia has navigated through a short yet sharp downturn. From the peak in April 2022 to the trough in February 2023, combined capital city dwelling values experienced a notable -9.7% drop, marking one of the steepest declines on record. Interestingly, this positive shift in market conditions has occurred in the absence of traditional drivers such as easing monetary policies or fiscal support.
The unexpected rise in net overseas migration has played a pivotal role, creating additional housing demand amidst tight rental conditions and below-average levels of advertised supply.
As real estate agents, it's crucial to understand these market dynamics and adapt our strategies accordingly. By staying informed and agile, we can better serve our clients and navigate the ever-changing landscape of the Australian property market.