Rents plummet in Sydney and Melbourne amid record oversupply of properties

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on July 20, 2020
Rents plummet in Sydney and Melbourne amid record oversupply of properties

Photo by Danny Howe on Unsplash

An oversupply of properties is making it cheaper to rent in Australia's biggest capital cities.

The latest ANZ CoreLogic Housing Affordability report found advertised rental properties increased by 57% in inner Melbourne, while Sydney's city and inner-south both recorded a 53% jump. 

Loss of income and travel restrictions contributed to the excess stock levels, causing a sharp decline in asking rents. 

However, the oversupply was confined to Sydney and Melbourne, with all other capital cities seeing a drop in total rental listings. 

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Variable
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Base criteria of: a $400,000 loan amount, variable, fixed, principal and interest (P&I) home loans with an LVR (loan-to-value) ratio of at least 80%. However, the ‘Compare Home Loans’ table allows for calculations to be made on variables as selected and input by the user. All products will list the LVR with the product and rate which are clearly published on the Product Provider’s web site. Monthly repayments, once the base criteria are altered by the user, will be based on the selected products’ advertised rates and determined by the loan amount, repayment type, loan term and LVR as input by the user/you. *The Comparison rate is based on a $150,000 loan over 25 years. Warning: this comparison rate is true only for this example and may not include all fees and charges. Different terms, fees or other loan amounts might result in a different comparison rate. Rates correct as of May 25, 2022. View disclaimer.

ANZ economist Felicity Emmett said the fall in demand for rental properties in these areas was due to their 'service economies', as people working in industries hardest hit by COVID-19 were also most likely to rent. 

“Nearly 40% of people who work in the accommodation and food services sectors rent,” Ms Emmett said.

“Between the weeks ending 14 March and 27 June, 21% of hospitality workers lost their jobs, compared to an average of 6% across all industries.”

The report found rental demand in these areas would have dropped even further if not for JobKeeper and JobSeeker. 

Although job losses had been more severe across the 'service economies', these sectors had a better recovery than total combined sectors over May and June, signalling some stabilising demand in the rental market.

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The oversupply of inner-city stock pushed rental values down as much as 7% in Sydney suburbs Haymarket and Bangaroo as well as Southbank in Melbourne. 

CoreLogic's Head of Research Eliza Owen said while reduced competition for rental properties is beneficial for tenants looking to negotiate rent reductions, landlords shouldn't panic. 

“The oversupply of rental stock since March has been largely confined to inner-city areas in Melbourne and Sydney, while all other capital cities have experienced a decline,” Ms Owen said.

“There are still opportunities for investors where rental markets have continued to tighten and rental values have increased, including select suburbs across Perth and Hobart where Airbnb stock may be reverted back to the short term rental market as inter-state travel resumes.”

Unit rental prices see massive drop 

Analysis by Domain found the rental market has become highly fragmented in recent months. 

Weaker conditions for units compared to houses meant unit rentals experienced their biggest price drop in more than 15 years, however the performance depended upon the number of bedrooms. 

Domain Senior Research Analyst, Dr Nicola Powell, said the damage to the rental market from the pandemic was being felt nationwide. 

"Rental prices fell across most major capitals, illustrating no city was immune from the impact of the coronavirus pandemic, with Sydney and Hobart units recording the steepest quarterly fall on record," Dr Powell said.

"Asking rents for one-bedroom units in Sydney and Melbourne experienced the most significant falls over the June quarter, followed by two-bedrooms.

"Three and four-bedroom units in Sydney and Melbourne remained relatively stable, or grew for three-bedroom units in Melbourne."

Units, quarterly change in asking rents 

1 bed 2 bed 3 bed 4 bed
Sydney -6.1% -1.9% -0.7% 0%
Melbourne -5.3% -2.2% 4.0% 0%
Brisbane 1.5% 1.3% 0% -1.2%
Perth 0% 0% 0% -4.4%
Adelaide 3.4% 1.6% 0%
Canberra -1.2% -2.0% 0% -0.8%
Darwin 1.9% 0% -2.2%
Hobart -10.3% -7.1% -7.1%

Source: Domain

Dr Powell said Hobart units experienced significant falls across all apartment sizes, highlighting the huge rental disruption. 

"Given a large part of Hobart’s economy is driven by tourism, many landlords had been lured by the lucrative incomes of short-term holiday lets.

"The pandemic has been detrimental for the tourism industry, and landlords were quick to seek longer-term tenants in order to retain cash flow during this time."


Disclaimers

The entire market was not considered in selecting the above products. Rather, a cut-down portion of the market has been considered. 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. Savings.com.au, yourmortgage.com.au, yourinvestmentpropertymag.com.au, and Performance Drive are part of the Savings Media group. In the interests of full disclosure, the Savings Media Group are associated with the Firstmac Group. To read about how Savings Media Group manages potential conflicts of interest, along with how we get paid, please visit the web site links at the bottom of this page.

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Alex joined Savings.com.au as a finance journalist in 2019. He enjoys covering in-depth economical releases and breaking down how they might affect the everyday punter. He is passionate about providing Australians with the information and tools needed to make them financially stable for their futures.

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