Sydney rents have biggest jump in four years: Domain Group

 Oct 8, 2015

Jennifer Duke

(Translation of this article appears in Arabic section)

Tenants in Sydney are feeling the pain as never before, with rents rising at the highest rate in four years, new data shows.

Investors looking to cover their expenses have been hiking rents in some Sydney regions, while demand on the whole has been propped up by strong migration into Sydney.

The median cost to rent a house jumped 3.9 per cent year-on-year, to $530 a week, Domain Group data released on Thursday found.

Apartment renters faced an increase of 3 per cent over the year to $510 a week, making Sydney the most expensive capital to rent a unit in the country.

Domain Group senior economist Andrew Wilson said changes from banking regulator, the Australian Prudential Regulation Authority (APRA), were having an effect.

The undersupply, coupled with strong levels of migration, is seeing rental homes in tight supply. Dr Andrew Wilson

In some cases, investors passed on higher interest rate costs in the form of higher rents. Others would choose not to purchase, reducing the number of rental properties available.

“The resulting reduction in the rental supply pipeline as indicated by the latest ABS data, will likely result in continued upward pressure on rents for the foreseeable future,” he said.

“The undersupply, coupled with strong levels of migration, is seeing rental homes in tight supply,” Dr Wilson said.

In the year to March, 101,200 people moved to NSW, according to the Australian Bureau of Statistics.

Booming prices had also impacted on what investors were charging tenants, Edwin Almeida from Just Think Real Estate said.

“A lot of people are cash-strapped and need higher yields to substantiate their property purchase,” Mr Almeida said.

Despite rising rental costs, over the year to September gross rental yields for houses dropped from 4.01 per cent down to 3.65 per cent, while apartments achieved 4.28 per cent.

A close look at the quarterly data for the regions found the most significant rental hikes in the investor heartland areas in the city’s south and west.

Rental prices in the south-west jumped 7.7 per cent over the year – the biggest increase for any region.

These are typically areas where many first-home buyers live, meaning they’ll be waiting longer in the queue as they pay extra rent while trying to save a deposit.

It would also affect lower income renters who are squeezed out of the metropolitan areas, said PRDnationwide research analyst Thomas Doyle.

In the past, tenants on lower incomes typically moved to the outer suburbs to avoid unaffordable rents nearer to the CBD. This is now becoming less of an option.

“The typical options of Penrith, Liverpool, Camden, and areas around there, are fast becoming more expensive,” he said.

They’re also becoming more competitive – the vacancy rate in the south-west region is the tightest in Sydney, at 1.9 per cent.

The vacancy rate across Sydney is 2.3 per cent for apartments and 1.8 per cent for houses.

“Where those who are priced out live next is the eternal problem the state government is facing,” Mr Doyle said.

Professor Hal Pawson from The Australian Housing and Urban Research Institute (AHURI) was also concerned about an “overspill beyond Sydney” pushing rents up in Sydney’s west.

“Investors have been buying disproportionately in the west for several years, but if [rents are increasing] demand must be increasing,” he said.

“The implication is that people are being pushed further out.”