Sydney rents surge $50 a week as budget fears hit the rental market

The federal budget’s controversial property tax changes are yet to formally bite, but fears over their impact may already be rippling through Australia’s rental market, as new data reveals Sydney house rents have surged $50 a week in just 90 days.

The latest Domain Rent Report, released Thursday, found Sydney house rents jumped 6.3 per cent over the June quarter – the strongest quarterly growth in four years – while house rents hit record highs across Australia.

Experts say landlords are hiking rent prices in advance of the changes, and warn the sharp re-acceleration in rent growth may only be the beginning, with the full impact of the Budget changes still several quarters away.

“For Sydney house rents to go up $50 a week in just three months is extraordinary,” says Domain chief of research and economics Dr Nicola Powell.

“This quarterly growth in Sydney is roughly five times faster than a year ago.

“With low vacancy rates everywhere, we’re seeing this is still a landlords’ market, but while the federal budget changes will impact future investors significantly, that change hasn’t come through yet and won’t show up for another few quarters.

“But the rent rises suggest that landlords are moving quickly in advance to lift rents where market conditions allow, and this will only get worse.”

$800 per week

16/6 Thames Street, Balmain NSW 2041

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The Budget changes, which wound back negative gearing and capital gains tax concessions for future investors in established homes, sparked warnings at the time that making property investment less attractive could drive investors from the market, further reduce the supply of rental homes and ultimately leave tenants paying the price.

While the full impact is yet to flow through to the rental market, Ray White group head of property management Zac Snelling says some landlords are already pushing rents higher to cover rising costs and test what tenants can afford.

“Investors are putting up rents to see what they can achieve,” he says. “But many of them are still grandfathered in the budget changes, and they risk losing quality tenants and, in their place, having more people move in, with a lot more wear and tear on their property.

“Meanwhile, for many tenants, excessive rents can be very challenging. These latest rises, on top of a shortage of supply, will exacerbate problems.”

As a result, house rents have increased throughout the country, with quarterly rises in Darwin of 5.6 per cent, Brisbane of 2.9 per cent, Adelaide of 1.6 per cent, Canberra of 1.4 per cent, Melbourne and Hobart of 0.8 per cent, and Perth of 0.4 per cent.

Nationally, the combined capitals saw house rents rise by 2.9 per cent on the quarter, bringing the annual increase to 7.7 per cent.

For tenants, the news of the rent increases – with more on the way – feels like yet another blow.

“I’ve been renting in Sydney for over 10 years, and you almost become numb to it. It never gets easier,” says Thomas Haire, 31. “It puts so much pressure on your whole mentality of getting ahead.

“It’s a vicious cycle of constantly playing catch-up, and you wonder if you’ll ever be able to save anything to one day buy your own place. It can be quite dispiriting.”

Haire, who works in recruitment in the CBD and rents on the upper north shore, doesn’t even have the option of moving home as his mother lives on the Mid North Coast of NSW.

“The expectation becomes that you’ll have to move further away from your community and spend so much time commuting, which affects the quality of your life,” he says.

“It’s a constant uphill battle, and you end up delaying decisions like having kids when you can’t find a stable base and plan for the future.”

Many other tenants are being forced by ever-rising rents to move back in with their parents, into share homes, into smaller properties, or to more affordable suburbs further away from the city centres.

$700 per week

26/29 Penkivil Street, Bondi NSW 2026

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But the looming Budget changes have also intensified concerns about the other side of the rental equation: the supply of homes available to tenants.

Powell says some long-term investors are already considering selling before the tax changes take effect.

“Investors who have held property for a long time are saying, ‘We’ve done well. Let’s sell before the tax changes come in and before prices fall significantly.’

“So I’m worried the situation will get worse as the tax changes will make investing less attractive.”

Unit rents also soared dramatically over the past three months by 4 per cent in Sydney and Hobart, an eye-watering 8.3 per cent in Darwin and a more modest 0.7 per cent in Perth. In all other capitals, they didn’t change but remained at record levels.

Tenants Union of NSW chief executive Leo Patterson Ross says such rent hikes mean tenants are having to come up with thousands of dollars more in rent every year – or take drastic action.

“We’re seeing more people living in smaller homes, and having to share spaces and rooms,” he says. “This is also doing real harm to people as they live with repairs not done or things like mould as they don’t want to risk more rent rises.

“The government’s focus is on increasing supply, but that’s as slow as the Titanic turning, and people are hurting. They need to help with rents like they did with energy costs.”

Even in Melbourne, which has the lowest capital-city house rent in Australia – due to greater housing supply, government policies affecting investors and a lack of confidence in the market – tenants are still doing it tough.

Its median of $600 a week compares starkly with Sydney’s $850, Darwin’s $760, Perth’s $750, Canberra’s $710, Brisbane’s $700, Adelaide’s $650 and Hobart’s $625.

Melbourne Real Estate director of business growth Steve Fitzsimon reports that the volume of rooming houses – houses rented out by the room with an en suite rather than the whole home – is increasing exponentially.

“Is that really the vision we want for our cities, these places lining our streets?” he asks. “But with rents escalating, sometimes people don’t have a lot of choice.

“The Victorian government tried to make renting fairer for tenants, but that backfired, with a lot of cheaper units being taken off the market.

“But with Melbourne rents still more affordable than many other cities, we are starting to see people moving here from interstate in order to rent.”