Canberra rental market now tougher for tenants

The Canberra rental market continues to tighten with an underlying shortage of accommodation and strong competition by tenants for available properties pushing up rents.

The median asking rent for a Canberra house increased sharply by 5.3 per cent during February, compared to February last year, to a record high of $500 per week. Canberra unit rents have also surged over the past year with the February result of $430 up by 8.8 per cent over the year.

Other capitals also recorded sharp annual increases in house rents over February with Hobart up 8.8 per cent to $300 per week, Sydney up 5.8 per cent to $540 per week and Melbourne up by 5.0 per cent to $420 per week.

Sharp increases in Canberra rents reflect rising tenant demand with vacancy rates for both houses and units continuing to tighten.

The February vacancy rate for houses fell to just 0.7 per cent compared to January’s result of 0.9 per cent. The unit vacancy rate was down sharply, falling over the month from 2.1 per cent to just 1.5 per cent.

Vacancy rates typically tighten following the seasonally quiet holiday period of January. However, comparisons with last year’s February results reveal rates for houses have fallen from 0.9 with unit rates steady over the year. The overall Canberra vacancy rate inclusive of houses and units was just 1 per cent over February and down from the 1.1 per cent recorded the year before.

Canberra’s vacancy rates are the lowest of all the capitals with the exception of Hobart that reported an overall result of 0.9 per cent over February.

Low interest rates remain a significant driver for the recent strong performance by the Canberra housing market. Reflecting a positive result for national economic growth over the December quarter announced by the ABS, the Reserve Bank has predictably decided to leave official interest rates on hold over March. Although underlying economic activity remains underwhelming, the likelihood is that rates will remain on hold at least until mid-year.

Mortgage rates, however, will likely continue to rise with surging investor lending again a key target for financial regulators. Higher rates for investors will not be welcomed by tenants in tight rental markets if it results in fewer rental properties or landlords converting increased borrowing costs to higher rents.

And with rents now increasing faster than incomes in most capitals, the prospects are rising for widespread personal hardship and general social dislocation.

Andrew Wilson is Domain Group Chief Economist

Twitter: @DocAndrewWilson

LinkedIn and Facebook: MyHousingMarket