Have inner-city rents recovered their falls since the onset of the pandemic?

Megan Lieu| 8 April 2022| Real Estate

https://www.realestate.com.au/insights/have-inner-city-rents-recovered-their-falls-since-the-onset-of-the-pandemic/

The pandemic initially brought about a slump in the Australian rental market, with CBD markets the hardest hit. But new data suggests city-living is making a comeback.

Advertised weekly rents in Inner Sydney and Melbourne regions saw the largest falls in years and remained down throughout the pandemic.

By contrast, other regions recovered quickly and have experienced strong growth in rental demand over the past year. Our largest markets finally seem to be following suit.

In June 2020, national rental prices saw the largest quarterly falls on record according to the Australian Bureau of Statistics’ Consumer Price Index.

This was due to multiple reasons.

The first was international border closures. With very limited migration and overseas arrivals, demand for rentals in inner-city areas decreased, while supply increased due to the conversion of short-term rentals. To attract and retain tenants, landlords had to lower rents.

Demand for inner-city rentals decreased in capitals like Melbourne. Picture: Getty

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The second was government stimulus, such as the introduction of HomeBuilder scheme and first home buyer schemes being made more generous. Coupled with record low interest rates, more potential renters became owner occupiers, decreasing rental demand.

The third reason rents fell was high rates of unemployment in younger people during the pandemic, who made up a larger proportion of renters. Many could no longer afford to rent.

Rents in the regions surrounding the Sydney and Melbourne CBDs, especially for units, fell the most throughout 2020 and 2021.

These regions in particular have a high reliance on international students and working professionals who left the city following border closures and the shift to remote working.

But there are signs that things have changed since then.

A closer look at these regions shows that there has been a recovery in rental prices over the past year.

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Units in Sydney’s Eastern suburbs, Inner West, City and Inner South regions, and houses in the Eastern suburbs, North Sydney and Hornsby regions all experienced yearly increases in rents.

Though Melbourne’s Inner and Eastern suburbs saw small yearly declines in unit rental prices, quarterly growth rates indicate that these markets have been improving over the past three months.

This is most likely a consequence of reopened international borders, a return to offices and universities in CBDs and lower youth unemployment rates which have reinvigorated rental demand in these regions.

The return of international students and migrants and a shift to hybrid working has brought about strong demand for rentals in inner-city regions of Sydney and Melbourne. We expect this to continue driving up rents as competition for rental properties increases.