Why the cost of renting a city apartment is now on par with houses

The median asking rent for an apartment in Australia’s capital cities is now on par with houses at $600 per week. This follows an extraordinary almost 25 percent surge in city apartment rents over the past year alone, compared with a 13.2 percent lift in house rents, according to Domain’s September quarter rent report.

The report’s findings are remarkable given units have reliably offered cheaper accommodation than houses historically. The $600 per week median was recorded across the combined capital cities, whereas in regional areas, median unit rents are still well below houses at $450 per week compared to $520 per week. The report reveals the Australian market has gone through the longest period of continuous rental price growth on record. The September quarter marked the 10th consecutive quarter of house rental growth (up 3.4 percent)and the 9th consecutive quarter of unit rental growth (also up 3.4 percent).

Apartment rents have surged the most over the past year in Sydney, Melbourne, and Brisbane, where weekly rents have risen by about 20 percent to record highs of $680, $520 and $550, respectively. Unit rents are also at a record high in Adelaide at $450 and Perth at $500. Across the other capitals, median unit rents are $450 in Hobart, $520 in Darwin and $550 in Canberra.

The key traditional drivers in Australia’s long-term shift to apartment living have been greater supply of apartments than houses, especially in popular urban suburbs with major infrastructure, and comparative affordability. Another factor is the increasing number of Australians living alone. Some are younger people who are increasingly delaying marriage until later in life. Australia also has an ageing population, so there is a rising number of older people living alone following the death of a spouse or the end of a marriage.

Exacerbating current demand for apartments is an undersupply. New apartment approvals have fallen to their lowest levels in a decade, according to the Australian Bureau of Statistics. Approvals have dropped by 15.8 percent over the past year amid the construction industry grappling with a shortage of materials and labour.

Domain’s rent report also showed that record weekly house rents were reached or sustained in Sydney at a median of $720, Melbourne at $550, Brisbane at $590, Adelaide at $550, Perth at $600, and Darwin at $650 during the September quarter. In the other capitals, median house rents are $530 in Hobart and $655 in Canberra.

Canberra was the only city not recording a record unit or house rental value over the quarter. Interestingly, the ACT is the only state or territory with a rental cap in place. The cap limits landlords to annual rental increases at the territory’s CPI rate for rents plus 10%. The Federal Greens recently lobbied for a temporary cap across Australia to help tenants cope with a runaway market, but Prime Minister Anthony Albanese said such propositions were a matter for each state and territory to consider separately.

Domain chief of research and economics, Dr Nicola Powell said the previous “extreme paces” of rental price growth had now ended but they were still relatively high. Dr Powell estimates that Australia needs 40,000 to 70,000 more rental homes right now to balance the market. “This is a significant amount of rental stock needed to balance out the rental market today, and not taking into account future population growth and people arriving from overseas and people relocating,” Dr Powell said.

New CoreLogic data shows rental vacancy rates have fallen to new record lows of 1 percent across the combined capital cities and 1.2 percent across the combined regional markets. CoreLogic economist Kaytlin Ezzy said: “Record high net overseas migration, fuelled by a combination of an increased flow of new arrivals and weaker departure numbers, coupled with a continued shortfall in rental listings, saw the vacancy rates falling to new record lows.”