‘Grossly unaffordable’: Sydney rents hit record highs

Sydney rents have jumped again over recent months after previously stabilising, with the cost to rent the typical house or apartment now reaching a record high.

The median asking rent for a Sydney house jumped 6.3 per cent, or $50, to a record high of $850 a week in the three months to June, the latest Domain Rent Report, released on Thursday, reveals. This was the strongest quarterly increase in four years. House rents jumped 7.6 per cent, or $60, over the year.

Asking rents for a typical Sydney unit also hit a record of $780 a week, after spiking 4 per cent, or $30, over the quarter. This was the fastest quarterly increase in three years, Domain said. On an annual basis, unit rents jumped 6.8 per cent or $50 a week.

The data takes in advertised rents but does not include lease renewals where rents may also increase.

The May Federal budget’s negative gearing and capital gains tax concessions reforms were aimed at improving younger people’s chances of buying homes. Treasury forecast the changes would slow property price growth by 2 per cent in coming years, and lift the median weekly rent by up to $2.

Dr Nicola Powell, Domain’s chief residential economist, said there had been stabilisation in rental prices in the previous March quarter as some tenants’ affordability hit a ceiling. But the “strong reacceleration” of Sydney rents in the June quarter, which encompassed the budget, was unusual.

“It’s … out of sync to the seasonal dynamics of what we would normally see,” Powell said.

“We’ve got to remember the rental market was tight even before the budget changes came through. So the reason we are here today is because Sydney is grossly unaffordable.”

For renters, the budget failed to provide short-term relief, with no new increase to Commonwealth Rent Assistance, and support for 80,000 new rental homes over the next decade. Despite the budget grandfathering existing landlords’ negative gearing arrangements, investors are also preparing to pay more tax on capital gains when they sell.

A spokesperson for federal Housing Minister Clare O’Neil said: “We know renters are doing it really tough at the moment in a very tight rental market. That’s why we’re making renting easier, fairer and more affordable, with longer leases, stronger tenant protections and more help to pay the rent: increasing Commonwealth Rent Assistance by more than 50 per cent by delivering the first back-to-back increases in 30  years.

“Our policies are increasing supply overall and will put downward pressure on rents over time but importantly, we want more renters to become home owners – and our tax changes will help 75,000 renters to do that.”

At the end of June, Sydney’s vacancy rate was 1.1 per cent, flat on the previous year. A vacancy rate of about 3 per cent reflects a balance between tenants and landlords.

“It is still a landlord’s market, so conditions are still very tight,” Powell said.

“I think what we’ve got is a little bit of preempting from landlords, pricing in and factoring in that maybe in six months time the vacancy rate is going to be tighter than it is today.”

Independent economist Saul Eslake said the current Domain rental vacancy rate was “pretty low by historical standards,” with the tight rental market spurring an uptick in rents.

“As a group, landlords have more power than tenants. I would be surprised if the changes announced in the budget had much to do with it, partly because the quarter was half over by the time the budget was brought down, but also because the measures in the budget don’t take effect until one July next year,” he said.

“So, landlords might be using it as an excuse for raising rents, but it’s an excuse, not a reason.”

Still, Eslake said the budget changes, before they come into effect, could dampen demand from investors for established properties, giving first home buyers a look-in and a chance to exit the rental market.

“It’s only when an investor buys a new property, or say, buys an apartment off the plan … that’s the only time when they’re adding to the supply of rental housing, and fewer than 20 per cent of investors do that,” he said.

Terry Christianos, a licensed real estate agent and the founder of Urban Renters Agent, a business that helps renters secure properties, said low stock had been a contributor to more competition and higher rents in Sydney.

“There isn’t enough stock in the market at the moment, and there hasn’t been, especially since … early May or mid-May,” she said.

“I don’t think I’ve ever experienced a market so tight in stock.”

For tenants with a set budget, Christianos said some of her clients were looking a little outside their required suburbs for affordability reasons.

Sydney rents have been rising for years as a fall in household size collided with the return of overseas migration, but stabilised recently in part because tenants had hit the limit of what they could pay. NSW is now racing to catch up on years of under-building to deliver enough new supply to meet demand.

Rental increases in the June quarter were broad-based across the city, but it was the family-friendly, so-called “mid-tier” suburbs that had jumped most, Powell said.

The strongest rental growth for houses was in the Sutherland region over the 12 months to the end of June, where rents were up 20 per cent to $1200 a week. It was followed by Ryde and the inner south-west, up more than double digits.

For units, the Central Coast – counted as Greater Sydney – recorded the strongest rental growth over the year, rising 11 per cent to $580 a week. The city and inner south was next, jumping 9.7 per cent to $933 a week.

Gina Chatellier, 34, is one new Sydney tenant who has been surprised by the prices in the harbour city’s rental market. Coming over from the west coast for her husband’s work, and having rent subsidised by his employer, allowed the couple to entertain the idea of the move.

“That was a big part of our deciding factor, knowing that Sydney rent is quite high, and we own our house in Perth, so we had to think about the numbers … we wouldn’t have done it without that assistance,” she said.

The couple did their search remotely and used a tenant’s agent. At one point, they considered expanding their budget as they had a dog, Maggie, and cat, Monty, to accommodate. But after three applications, they recently secured their three-bedroom home in the Five Dock area.

“The agent was quite good at managing our expectations,” said Chatellier, who is a registered organisational psychologist.

For many renters though, there is a ceiling of what they can afford to pay, and even high-income earners are struggling to find properties they can afford, Everybody’s Home spokesperson Maiy Azize said.

“In our system, landlords hold all the cards. They charge what they think they can get away with, and renters pay what they can afford – or as much as they can stretch to afford,” she said.

“We’re seeing people take on second jobs, skip meals, move further away from work and family, or stay in homes that aren’t suitable because they simply have nowhere else to go.”

The construction of public and community housing was needed, Azize said, adding it would take pressure off the whole rental market.

Eslake said rents could still rise into the future.

“As long as vacancy rates remain under two, the likelihood is that rents will rise at least in line with inflation, if not a bit more,” he said.