The most recent RBA cash rate increase of 0.25%[i] is putting more pressure on new buyers to the market and those who entered at a time when interest rates were their lowest in many borrower’s memories. While the 1990s are fortunately a distant memory, the RBA cash rate of 17.5% back then appears today to be an unsurmountable struggle to contemplate. The reality is that if wages are pacing high, then borrowers can better absorb interest rate increases and CPI increases. However, if they are not, then some financial stress is inevitable.
- Housing Affordability
- Expensive and affordable locations
- Rental supply tightening and vacancy rates dropping
Adelaide housing price value growth over the 12-month period to September 22 was 19.2%[ii] though it declined 0.2% for the month of September – far shy of the 1.4% decline nationally. Nationally, the twelve months to September saw annualized growth come in at 1.7% so the growth performance of the Adelaide market over that period has been exceptional. Only Brisbane came anywhere near close to Adelaide with its 13.4% annual growth.
Recent data published by Core Logic shows that Adelaide is no longer Australia’s most affordable rental market either. With a median weekly rent of $492[iii], Adelaide has been pipped by Melbourne in the affordability stakes with its median weekly rent of $480. Canberra ($690) and Sydney ($643) are the most expensive rental markets in the country according to data to the June 22 quarter.
There was a 4.3% increase in rental rates in Adelaide for the June 22 quarter – Adelaide’s strongest growth since Core Logic started recording this data in 2005.
Across houses and units, the past twelve months saw a 10.6% growth in rents in Adelaide, outpacing the national growth figure of 9.5%. Even if we go back as far as 10 years, the change in rental rates for Adelaide has outpaced the national figure. House rental rates have grown 36.5% for Adelaide over that period (31.1% nationally) and unit rentals have increased 29.8% (24.2% on a national basis). Regional rental rates are the star with 37.8% growth nationally over the past 10 years and unit rentals 46.9%. The desire for a sea change seems to be very much a reality.
Hobart is another standout over the past 10 years with house rents increasing 63.% and units 62.2%.
Expensive and affordable locations
Glenelg North is Adelaide’s most expensive rental suburb at the moment followed by Malvern, Somerton Park and Toorak Gardens. While this is roughly aligned with property values (the higher the value, the higher the ranking among the Top 30 suburbs by rent expense) there are standouts. Somerton Park, North Adelaide, Glenelg East, Brighton, Seacliff and Hove have lower median values but are higher on the “expensive to rent” Top 30 list. That of course translates to higher-than-average gross rental yields for those particular suburbs (all exceeding 3%). For affordability Salisbury East, Salisbury, Salisbury North, Andrews Farm and St Mary’s present the greatest value to tenants.
A high median value does not mean a higher gross rental yield. Of the Top 30 Affordable suburbs, Salisbury, Elizabeth North, Davoren Park, Elizabeth Downs and Smithfield return gross rental yields in excess of 6%.
Rental supply tightening and vacancy rates dropping
Vacancy rates are now very low in Adelaide, currently sitting at 0.3% for the June quarter from a figure of 0.8% twelve months ago. For comparison, the current national vacancy rate is 1.2% – which is also far tighter than the 2.2% of 12 months ago.
Perhaps the only shining light for those needing a rental is the likelihood that investors who took profit during the heightened value increase cycle may return with some of that realized cash to the property market, providing increased rental stock. There may also be new and first home-owners who bought in a period of very low interest rates and are now finding themselves challenged financially. However, we would hope that they can find a mutual solution with their lender rather than being in a position where they need to opt for a forced sale.
[i] Reserve Bank of Australia/Statistics Cash Rate Target | RBA
[ii] Home Value Index October 2022, Core Logic.
[iii] Quarterly Rental Review Report June Q 2022, Core Logic.