Rents, yields rising as housing supply dries up

Increased demand for higher density housing and steadily growing levels of overseas migration have contributed to rents rising even further this month.

Led by the unit rental market, which saw rents lift by 1.1 per cent in October, rents have now soared since the onset of Covid.

Capital city rents have risen 17.7 per cent and regional rents are up 25.5 per cent, with no sign of the upwards pressure easing. In every state, the pace of rent rises in the regional markets outstripped their capital city counterparts.

Domain’s October Rental Vacancy Rate Report, released Wednesday (2 November) has found that the national vacancy rate has declined to its lowest point on record, at 0.8 per cent. All capital cities remain in a landlord’s market, with rental listings plunging to a new historic low, declining 48.2 per cent annually.

Perth (0.3 per cent), Melbourne (1.1 per cent) and Sydney (1.0 per cent) have all hit their lowest ever vacancy rate.

The latest interest rate hike will only deter investors from buying and alleviating record low vacancy rates around the country, although falling property prices may offer some renters the opportunity to get a foot on the property ladder.

The trend towards higher rental growth across the unit sector is evident across most of the capital cities and rest-of-state markets.

Melbourne and Sydney, with their higher concentration of unit rental stock, recorded the highest annual rental appreciation for units, with rents up 13.7 per cent and 13.4 per cent respectively over the past 12 months.

Oct2022 GrossRentalYieldsDwellings
Source: CoreLogic.

More broadly, the speed of rental growth has been slowing, with the rolling quarterly rate of national rental growth dropping from 3.0 per cent over the three months ending May 2022 to 2.1 per cent over the most recent three-month period.

CoreLogic’s Research Director, Tim Lawless said renters may have reached their limits.

“A gradual slowdown in rental growth in the face of low vacancy rates could be an early sign that renters are reaching an affordability ceiling,” he said.

Although rents are likely to continue to rise, it’s likely renters will be progressively seeking rental options across the medium to high density sector, where renting is cheaper, or maximising the number of people in the tenancy in an effort to spread higher rental costs across a larger household,” Mr Lawless said.

The federal government recently announced an increase to the permanent resident intake to 195,000 this year to help with labour shortages.

Nerida Conisbee, Chief Economist, Ray White, said last year was all about price growth but it certainly wasn’t about rental return.

“Residential rental yields hit their lowest level ever recorded at the start of this year but are now steadily increasing,” she said.

“Depending on where you buy, you may be able to balance out lower price growth with an increase in your rental return.”

Paul Ryan, senior economist at PropTrack, said the current “tough period” for renters was likely to continue for some time.

“The way we think about this is because we’ve seen advertised rents rising strongly, we know that CPI rates will catch up, but it will take a long time to catch up because it takes a while for all those existing rentals to turnover and update their prices,” he said.

Mr Ryan welcomed the federal government’s announcement in last week’s budget to build more houses.

“That’s the long-term solution. Unfortunately, it takes a while,” he said.

Raining on renters’ parade

Everything seems to be conspiring against rents in the current market, from limited rental options and higher prices to even the weather.

Dwelling approvals are now down 10 per cent from last year and many projects have been delayed due to challenges in the construction sector.

“While this has a flow on to economic growth, it also impacts rents and prices,” Ms Conisbee said.

“It is getting harder to find a home to buy or rent and this is not going to change any time soon.”

Construction industry issues, from increased material costs, labour shortages and now appalling weather, have also wrought havoc upon the delivery of new rental stock.

The federal government has responded by announcing its ambition to build one million new homes over five years.

Brett Mason, CEO of Built, told this week’s Property Congress that the company ordinarily budgets for 10 per cent of its construction days to be lost due to bad weather.

“We’ve lost 40 per cent of our days to wet weather since last November in Sydney,” he said.

Scott Hutchinson, Chairman, Hutchinson Builders, said that wet weather had been the “real killer”, more so than Covid, when it comes to construction delays.

Mr Hutchinson said he is seeing more clients taking on the risks of wet weather.

At the moment, governments are more likely to share the weather risk, according to Mr Mason, but private clients are more likely to share supply chain risk.

As rents continue to rise and dwelling values generally trend lower, gross rental yields remain on a rapid upwards trajectory, according to CoreLogic.

Capital city gross yields (3.43 per cent) are now at the highest level since November 2020 after rising 47 basis points from the February 2022 record low. This was largely led by a 57-basis point rise in unit yields, while house yields rose by 43 basis points.

Despite rising by a smaller 34 basis points since the April low, regional yields are substantially higher than gross yields across the combined capitals at 4.4 per cent for houses and 3.4 per cent for units, respectively.


The Far North region in Queensland tops the list of places where it’s virtually impossible to secure a rental, with practically no vacancies.

Renters in Western Australia in the regions of Manjimup, Augusta-Margaret River-Busselton, and Esperance have also been facing major competition, with a vacancy rate of less than 0.4 per cent.

The Murray River-Swan Hill region in Victoria and the Upper Hunter region in New South Wales have vacancy rates of just 0.33 per cent and 0.42 per cent, respectively.

Ray White Group last week released a summary of capital city rental markets, which highlighted the strength of the rental market and its likelihood of maintaining strong rental growth.

Sydney – Despite losing a sizeable number of people to Queensland, rental yields are improving. Sydney’s population is starting to increase again, which will underpin demand for property. At the same time, construction costs are rising and that will limit housing supply.

Darling Point and Vaucluse, two of Sydney’s more expensive suburbs, saw the biggest increase in advertised rents per week. At the other end of the spectrum, Willoughby East and Clontarf saw the biggest declines.

Melbourne – It’s never been more expensive to rent a house in Melbourne with rents rising by 11 per cent over the past 12 months. Unit rents have also risen but are still on average cheaper than where they were at the end of 2019.

Unlike house prices, it’s unlikely that we’ll see a slowdown anytime soon for the Melbourne rental market. The city lost people during the pandemic which meant rents didn’t rise as much as they otherwise would. Now that international migration is back, and the flow of people to southeast Queensland is likely to have stalled, this will create additional pressure on housing demand.

The desirability of outer suburban areas continues to be a trend in Melbourne. Portsea and Sorrento on the Mornington Peninsula top the list for rental increases. 

Brisbane – Brisbane doesn’t have enough homes for those that want to live there.

This is making it tough for renters but does make it a good place to invest. While red hot house price growth is unlikely to start up again in the near future, yields are increasing as rents rise.

Between March 2020 and September 2022, rents increased by 34 per cent. While buyer affordability gets the headlines, rental affordability is far more problematic and will worsen if investors lose confidence in the Brisbane housing market.

The rental outlook for the Brisbane market remains strong. Interstate migration may start to slow but international migration is starting up again. Housing supply is being constrained by record high construction costs.

Adelaide – Although house price growth is finally starting to slow, rents are not.

The median advertised rental rate for houses is now sitting at $500 per week while units are at $420 per week. Over the past 12 months they’ve risen by 14 per cent and 10 per cent, respectively. Compared with other capital cities, rents for houses and units are moving relatively close together.

The suburbs that dominate the list of strongest rental markets are in Adelaide’s inner areas. Topping the list is Malvern, where advertised rents have risen almost $200 per week over the past 12 months.

Perth – The Western Australian capital is now dominating the country for population growth and with that comes increasing demand for housing, resulting in strong rental growth. So much so that advertised rents per week for houses now exceed the last mining boom peak reached in June 2013, having increased by almost 16 per cent over the past 12 months.

Unlike price growth which appears to have stalled, rental growth is expected to continue with population growth continuing and supply of housing being constrained. Yields for houses in Perth are now the second highest in the country, sitting at 4.37 per cent. This compares to Melbourne at 2.7 per cent and Sydney at 2.6 per cent.

Peppermint Grove and Claremont, two of the city’s most expensive suburbs, have seen the biggest decline in rents, yet nearby Dalkeith has seen one of the biggest increases. More broadly, the beachside remains popular with renters, with City Beach and Swanbourne seeing big jumps in rents over the past 12 months.

Hobart – There are only three suburbs in Hobart that are currently seeing declines in rents and this is only for units, not houses. These suburbs are Rokeby, Dynnyrne and South Hobart. Hobart remains a great investment, however, with yields at one of the highest levels in Australia.

Canberra – While price growth will likely stall until there is more certainty as to when interest rates will peak, rents are likely to continue to increase. Right now, house rents have come back a little bit but unit rents are increasing. Despite high levels of new development through the pandemic, it’s never been more expensive to rent an apartment. This is great news for investors, but more challenging for renters.

O’Malley houses top the list for rental growth, followed by houses in Forrest and units in Yarralumla. There are only eight suburbs in Canberra where rents are falling

Darwin – Rents for houses are now at their highest level ever recorded, whereas unit rents are slowly heading back to their October 2014 peak.

Darwin is now one of the few places in Australia where rental yields are still well up on most mortgage rates, even with rising interest rates. For houses, the yield is currently 5.73 per cent and for units, it’s 7.07 per cent. You may struggle to get strong capital growth short-term in much of Australia right now, but in Darwin you’ll get enough to pay off your mortgage plus a bit leftover. If rental growth continues, this yield is likely to continue to improve over the next 12 months.

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