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Sydney rents: historical performance and outlook

Sydney rents: historical performance and outlook
May 30, 2018 Propertyology

Rents in Greater-Sydney have increased by less than 20 per cent over the last five calendar years.

Research conducted by national property market analyst and buyers agency, Propertyology, says that the 19.1 per cent increase in apartment rents and 18.6 per cent increase in house rents over the last 5 calendar years is the smallest increase in 20 years.

The five years ending December 2017 also produced lower wage growth than all of the previous 5-year blocks 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.

Sydney’s median rent for 2-bedroom apartments is $550 per week. That is more than the $510 per week median rent for a 3-bedroom house.

42 per cent of Greater-Sydney’s total dwelling stock of 1.85 million are apartments or semi-detached dwellings. This is significantly higher than any other capital city.

According to 2016 Census, 34.1 per cent of Sydney households are occupied by renters (only Darwin and Brisbane are higher).

Across each of the 5-year blocks between 1997 and 2017, New South Wales wage growth was 17.1 per cent (5YE 2002), 20.4 per cent (5YE 2007), 19.2 per cent (5YE 2012) and 11.3 per cent (5YE 2017).

Interestingly, rental growth was strongest in 5YE 2007 and 2012 when Sydney’s property price growth was the lowest of all capital cities. It is noted that wage growth was strongest during these periods; a reduction in the volume of new rental stock from lower investor activity also placed pressure on Sydney rents.

Sydney property prices increased by 87 per cent (5YE 2002), 25 per cent (5YE 2007), 16 per cent (5YE 2012) and 64 per cent (5YE 2017) over each of the 5-year blocks.

With a record volume of new apartments currently under construction in Sydney and an estimated 50 per cent or more of these purchased by investors, Propertyology anticipates that Sydney will continue to see nominal rental growth in the next couple of years (some pockets may see a slight reduction).

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.

Strong investor activity reduces pressure on household rents. Conversely, rental pressure builds when the investor appetite reduces.

The role that mum-and-dad investors have played in increasing Australia’s rental stock has been very important for household budgets at a time when wage growth is at a 20-year low.

Sadly, home ownership in Australia’s most expensive city is now completely out of reach of most Sydney tenants and, in spite of their ramblings, there is no government policy or initiative that could change that. Propertyology anticipates that the proportion of renters in Sydney is likely to keep increasing from (currently) 34.1 per cent towards 40 per cent over the next 10 years.

38,000 residents left Sydney over the 2 years ending June 2017. Future migration out of Sydney to more affordable locations is likely to continue.

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. Now, while others fight like seagulls over a chip to get in to that market, our buyer’s agents are actively investing in a few other locations that resemble what Hobart looked like in 2014. Like to know more? Contact us here.