The onset of Covid-19 may be creating a two-speed rental market, with inner-city rents declining faster than those in the outer suburbs.
Corelogic data confirms that there is a positive correlation between changes in rent values and distance to the CBD.
This means that the closer a region is to the CBD, the more likely it is that rent values have fallen.
Rent values were analysed across statistical area regions of Brisbane, Sydney and Melbourne—for each region, the median property distance to the CBD was compared with the change in total rental market values from the end of March (which marked national, stage 2 restrictions) to the end of August.
For regions where the typical property is less than 10km from the CBD, the average decline in house rents was 2.3 per cent, and 3.6 per cent across units.
For rental markets 10km or further from the CBD, house rents had actually increased 0.1 per cent, while unit values declined a relatively mild 0.4 per cent.
Why have inner city markets been more affected?
As has been noted in previous research from Corelogic, there are several distinct factors of the Covid-19 downturn that have made inner city rental markets particularly susceptible to a decline in rental values.
These include the relatively high exposure to overseas migration as a source of housing demand.
Where have rents increased?
Of the 125 rental markets analysed, there were 63 regions where house rents increased, and 35 regions where unit rents increased, since the end of March to August.
Rental increases were most common across Sydney and Brisbane, where employment has been less affected by the pandemic, and social distancing measures have eased.
The reason for rental value increases in outer-suburban areas are less clear.
One explanation may be that outer-city suburbs have been less exposed to the factors driving declines in demand, such as overseas migration.
Anecdotal reports assert that a draw card for outer-city suburbs are relatively cheap rents, and low density along with remote working lessening the hurdle of travel times from areas located further form the largest employment nodes.
This may have increased rental prices through higher demand.
The analysed data set also revealed that rental value increases have occurred in cheaper rental markets.
It may also be the case that added stimulus to low income households have added to rental demand in areas where rents are usually cheaper.
The tapering of this fiscal support may lead to a more broad-based decline in rents over the next six months.
Things are looking up for the national property market as experts predict house prices could experience a significant boom in the near future according to Westpac’s optimistic property forecast. The nation’s second biggest bank has predicted prices are set to bottom out by June after a 2.3 per cent fall before creeping back up by 15 per cent in 2023.
The bank initially predicted a 10 per cent slump for national housing prices between April 2020 and June 2021 with a slight 8 per cent recovery in store for next year, however Westpac’s chief economist Bill Evans and senior economist Matthew Hassan have improved their expectations.
The forecast now predicts the total fall to be 5 per cent – which is a further 2.3 per cent fall after already declining 2.7 per cent since April – as several capital cities are proving to be more resilient. Perth’s prices are expected to remain the same while Adelaide will actually rise by 2 per cent. However, locked-down Melbourne is expected to have the biggest drop of 12 per cent, followed by 5 per cent in Sydney and 2 per cent in Brisbane.
Westpac’s figures were the most promising compared to its fellow lenders with Commonwealth upgrading its prediction earlier this month from an expected 10 per cent drop to 6 per cent followed by a meek 3 per cent recovery in the second half of next year.
Economic experts predict prices will reach their lowest in June next year following a surge in urgent or distressed sales after all mortgage deferrals expire in March. Some of this brunt could be felt in the coming weeks as around half of the more than 900,000 deferred loans will be assessed in September and October as they reach the end of the six month stint, according to the Australian Banking Association.
However, the market is expecting to see a 15 per cent surge that will be spread evenly over the two years leading up to mid-2023 with the biggest gains being felt on the east coast with Brisbane expecting a 20 per cent boom. Meanwhile, Perth will see an 18 per cent rise, Sydney with 14 per cent and 10 per cent in Adelaide. Meanwhile, Melbourne will see a 12 per cent increase which will bring the city back to its pre-Covid prices while the other capitals get substantially more expensive.
So there you have it. People are looking to move out of the CBD and into “safer” suburban locations. Brisbane is being seen as a safe, clean environment to invest and top end money is flowing to luxury property. Moving forward some experts are predicting big upward moves in property prices over the next couple of years.
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