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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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.
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.
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
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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