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Melbourne’s Rental Market

Melbourne’s Rental Market
September 3, 2018 Propertyology Head of Research and REIA Hall of Famer, Simon Pressley

The population of Australia’s second largest city just ticked over 5 million. And while it’s staggering to think that the increase in Greater-Melbourne’s population over the last 2 years (246,840) was more than Greater-Geelong’s total population (244,798), Melbourne rents are more affordable than most capital cities.

Over the 20 years ending December 2017, the median rent for a 3-bedroom house in Melbourne increased by 109.8 per cent. This is the second smallest increase, after Darwin, of Australia’s 8 capital cities.

Median rents for a 2-bedroom unit increased by 159.3 per cent.

Over the last 5 years, rents in every Australian capital city have experienced the lowest growth in 20 years.

Analysis conducted by Propertyology looked at the historical trend of capital city rents between 1997 and 2017. The 5-years ending December 2017 produced lower rental growth than all of the previous 5-year blocks in every capital city over the last 20 years.

The 5 years ending December 2017 also produced lower wage growth than all of the previous the 5-year blocks in every state over the last 20 years.

We keep hearing that wages haven’t grown much at all in Australia post-GFC and how that’s hurting households because cost of living has increased. Propertyology’s research concluded that there is a direct correlation between rental growth and wage growth.

Unprecedented growth in investment lending over the 5 years ending December 2017 and the resultant extra supply of rental stock (predominantly in Sydney and Melbourne) has also played a significant role in suppressing the growth in rental prices.

Across each of the 5-year blocks, Melbourne property prices increased by 94 per cent over (5YE 2002), 55 per cent (5YE 2007), 21 per cent (5YE 2012) and 56 per cent (5YE 2017).

Victoria’s wage growth across each of the 5-year blocks, was 17.6 per cent over (5YE 2002), 19.6 (5YE 2007), 19.0 per cent (5YE 2012) and 12.1 per cent (5YE 2017).

Rental growth was strongest in the 5YE 2007, a period when Victoria had its highest wage growth combined with lower investor activity than the previous period.

Rental growth over the 5 years ending 2017 was higher for Melbourne apartments (13.5 per cent) than detached houses (11.6 per cent).

The 5YE 2017 produced a record level of population growth in Victoria, from a combination of overseas migration and interstate migration, especially from Western Australia.

Relative to its median dwelling values and household incomes, Melbourne rents are more affordable than many other capital cities. Median house ($385pw) and apartment ($420pw) is significantly more affordable than Sydney ($510pw and $560pw, respectively).

31 per cent of Melbourne’s total dwelling stock of 1.83 million are semi-detached properties and apartments.

Like Sydney, a very high level of investor activity during the 5YE 2017 took significant pressure off of rents.

Propertyology anticipates that investor activity in Melbourne over the next 5 years is likely to reduce significantly, meaning fewer extra properties added to Melbourne’s rental pool.

The Victorian state government’s vacancy tax (commenced 1 January 2018) is targeted at an estimated 20,000 empty Melbourne properties. An unknown proportion of these empty properties will progressively add to Melbourne’s rental stock however, the primary purpose of the policy is to keep pressure off rents.

It is indisputable that strong investor activity reduces pressure on household rents. Conversely, rental pressure builds when the investor appetite reduces.

Right across Australia, rents have barely moved over the last 5 years. In fact, rents for 5 out of 8 capital cities have varied by less than 5 per cent over the entire 5-year period.

Over the 20 years in total, capital city rents have increased by between 83 per cent (Darwin) and 166 per cent (Canberra). Sydney (155 per cent), Hobart (146 per cent) and Perth (141 per cent) were among the highest. Brisbane (130 per cent), Adelaide (126 per cent) and Melbourne (109 per cent) were among the lowest.

Here’s how an everyday Aussie property investor used rental income to purchase three (3) properties, all in different parts of Australia, and it costs their household budget less than $500 per month.

Propertyology is a Brisbane-based buyers agency and (national) property market research firm. We help everyday people to invest in strategically-chosen locations all over Australia. Testament to our multi-award-winning success is Propertyology’s expertise in being the only company in Australia to forecast Hobart’s remarkable resurgence and begin investing there in mid-2014, before the boom. Our buyer’s agents are now investing in a few other locations that resemble what Hobart looked like in 2014. Like to know more? Contact us here.


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