Rents at seven-year low, Brisbane more expensive than Melbourne

author-avatar By on January 14, 2021
Rents at seven-year low, Brisbane more expensive than Melbourne

Domain's rental report for the last quarter of 2020 indicates rents are at their lowest point since 2014, led by unit price falls in Sydney and Melbourne.

Melbourne's median unit rental price is $388 per week, down 3% on the quarter and 7.6% on the year, while Sydney's is $470, down 5.1% on the quarter and 7.8% on the year.

Brisbane, on the other hand, has a median unit rent price of $400, an increase of 1.3% over the quarter and 3.9% over the year.

This is the first time in five years that Brisbane's unit rent price was more expensive than Melbourne's, according to Domain.

Buying a home or looking to refinance? The table below features home loans with some of the lowest variable interest rates on the market for owner occupiers.

Base criteria of: a $400,000 loan amount, variable, principal and interest (P&I) home loans with an LVR (loan-to-value) ratio of at least 80%. If products listed have an LVR <80%, they will be clearly identified in the product name along with the specific LVR. The product and rate must be clearly published on the Product Provider’s web site. Monthly repayments were calculated based on the selected products’ advertised rates, applied to a $400,000 loan with a 30-year loan term.

Canberra rents more expensive than Sydney, Melbourne 

Canberra has trumped Sydney and Melbourne to be the most expensive city to rent a unit, up 3.1% quarterly to $495 a week, marking the first time in a decade it has taken this mantle.

The nation's capital also maintained its spot as the most expensive place to rent a house, up 3.4% in the three months to 31 December, to $600 per week. 

The biggest rebounder was Darwin, with house rent prices up 12.2% on the quarter to $520, while house prices rose 7.7% to $420.

According to Domain, Darwin house and unit asking rents have reached their highest point since 2017, and annual gains in rents are the highest since the lead up to the city's 2013 peak. 

Nationally, the divergence between units and houses continued, with house rental prices up 4.8% on the year to $469.

Domain senior research analyst Dr Nicola Powell said house rents are now at a record high following the steepest annual gain in just over a decade.

"Most capital cities have the highest house asking rent since Domain records began in 2004, apart from Darwin, Perth and Hobart. Units recorded the steepest annual fall on record to reach the lowest asking rent since early 2014, led by declines in Sydney and Melbourne,” Dr Powell said.

Domain's figures are generally corroborated by data from SQM Research, which indicated unit rent prices in Melbourne plunged 8.7% on the year, while surging 27.3% for houses in Darwin.

Strong gains were also seen in capital cities other than Sydney and Melbourne, according to SQM managing director Louis Christopher.

"It's clear Sydney and Melbourne apartment investors were the losers of 2020, with rents and prices falling," he told the ABC.

"Darwin is more difficult to explain. Their economy remains very weak. However we think it has much to do with Victorians moving up north and away from COVID restrictions.

"Keep in mind that Darwin [and] the NT was the first place to come out of restrictions and open their borders back in June."

Capital City Rent Prices in 2020

City Unit Median Rent House Median Rent Yearly Gain (Units/Houses)

Sydney

$470 $550 -5.1% / +1.9%
Melbourne $388 $420 -3.0% / 0.0%
Brisbane $400 $425 +1.3% / +2.4%
Adelaide $340 $410 0.0% / +1.2%
Perth $350 $420 +2.9% / +6.3%
Hobart $400 $460 0.0% / +2.2%
Canberra $495 $600 +3.1% / +3.4%
Darwin $420 $550 +7.7% / +12.2%

Source: Domain Q4 2020 Rent Report

Still cheaper to own a home than rent?

If using averages or medians, it's generally cheaper to service a mortgage than it is to rent either a house or unit.

Domain's data shows the median national house rent is $469 a week or $2,032 a month, and for units, the median rent price was $432, or $1,872 a month.

According to MoneySmart, the average home loan rate as of November 2020 - for an owner-occupier paying principal and interest - was 2.54% p.a.

In October 2020, 14,716 loans were written for first home buyers for a total value of $6.0341 billion, according to the Australian Bureau of Statistics (ABS). 

This indicates an average loan size of $410,037, and using the 2.54% p.a average home loan rate, it equates to $1,629 per month over 30 years being spent to service the mortgage.

This also highlights the importance of reviewing home loan rates - a 1.99% p.a home loan on $410,037 would cost $1,514 a month over 30 years to service, a saving of more than $100 a month (or more than $41,000 over 30 years, assuming rates stay the same).

In any of these instances, it's cheaper at the base level to service a $400,000-odd mortgage than to rent a place.

However, one of the biggest financial considerations with buying a house or unit is the added costs of property maintenance, and for units, body corporate fees.

This can quickly blow any rent-versus-own arguments out of the water, as the 'rule of thumb' is to set aside 1% of the property's value every year for home maintenance, with body corporate fees also wildly variable based on the apartment block itself.

Calculating rents using rental yield

The rent-versus-buy argument also gets more convoluted if you look at rental yield.

If a borrower had a 20% deposit, which is admittedly not everyone, the average loan size figure mentioned earlier implies a home price of over $512,000. 

According to SQM Research, the average capital city rental yield across all houses was 2.9% as of January 2021, which works out to be about $285 a week in rent on that implied average home price.

If you can find a $500,000 home charging $285 a week in rent in a capital city, then more power to you. 

Using a 5% rental yield, the figure comes out to $492 per week, which seems more realistic.

Further, ABS stats indicated the average capital city home price was $689,000, and with a 2.9% rental yield that works out to be $384 a week, and for a 5% yield, $663 a week.


Photo by Yong Chuan Tan on Unsplash

Disclaimers

The entire market was not considered in selecting the above products. Rather, a cut-down portion of the market has been considered which includes retail products from at least the big four banks, the top 10 customer-owned institutions and Australia’s larger non-banks:

  • The big four banks are: ANZ, CBA, NAB and Westpac
  • The top 10 customer-owned Institutions are the ten largest mutual banks, credit unions and building societies in Australia, ranked by assets under management in November 2020. They are (in descending order): Credit Union Australia, Newcastle Permanent, Heritage Bank, Peoples’ Choice Credit Union, Teachers Mutual Bank, Greater Bank, IMB Bank, Beyond Bank, Bank Australia and P&N Bank.
  • The larger non-bank lenders are those who (in 2020) has more than $9 billion in Australian funded loans and advances. These groups are: Resimac, Pepper, Liberty and Firstmac.

Some providers' products may not be available in all states. To be considered, the product and rate must be clearly published on the product provider's web site.

In the interests of full disclosure, Savings.com.au, Performance Drive and Loans.com.au are part of the Firstmac Group. To read about how Savings.com.au manages potential conflicts of interest, along with how we get paid, please click through onto the web site links.

*Comparison rate is based on a loan of $150,000 over a term of 25 years. Please note the comparison rate only applies to the examples given. Different loan amounts and terms will result in different comparison rates. Costs such as redraw fees and costs savings, such as fee waivers, are not included in the comparison rate but may influence the cost of the loan.

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author-avatar
Harrison joined Savings in 2020. He is an experienced journalist, with previous stints at News Corp and financial comparison site Canstar. With a keen interest in personal finance, Harrison is passionate about helping consumers make more informed financial decisions.

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