CoreLogic released its quarterly regional report, which found that the annual growth rate of the combined value of regional homes (13%) was more than double that of capital cities (6.4%) in the 12 months leading up to April.
Remarkably, the values ââof rents in the combined regional markets exceeded rents in the capital cities even more – the values ââof regional rents increased almost three times as much as the capital markets during the year.
The CoreLogic hedonic rental value index, which tracks the combined value of rent estimates for all properties, rose 9.6% on the year through April, compared to 3.3% in capital cities.
Large regional centers show a tightening of rental markets
The table below shows some rental metrics from major SA4 regions across Australia, revealing an extraordinary tightening in regional rental markets. Of the 25 regions analyzed, the total number of rental listings available has, on average, halved during the year. According to the CoreLogic Hedonic Rent Index for these regions, rent values ââincreased 9.4% on average. This ranges from a 17.6% increase in the Richmond-Tweed region to a 2.3% increase in the Capital region.
In these regions, the average time spent by a rental property in the market fell from 25 days in the three months to April 2020 to 17 days in April 2021, where the median time spent by a rental in the market was 2 weeks .
The data suggests that renters must compete harder for rental housing in major regional centers, both in terms of portfolio and pace of decision-making. More serious consequences of the recent tightening of rental markets include housing stress and homelessness.
Several factors may explain the rapid tightening of rental markets, although this applies very generally to regional Australia rather than to the specifics of each market.
Fewer people leaving the regions since the start of COVID. ABS data shows that in calendar year 2020, migration from regional Australia to capital cities fell to 190,151. This is about -4% below the series average, and may have contributed to a decrease in the rental stock vacated during the year. The decline in internal migration may have resulted from the disruption of work or study plans in the city by COVID-19.
More people moved to the regions during the September and December quarters. Along with the decline in the number of people moving from regions to cities, quarterly ABS data for December and September showed an increase in migration from cities to regions, compared to equivalent quarters in 2019. Overall of the calendar year, migration to the Australia regions of cities (233,122) compared to the previous year (233,779).
Regional relocations from cities to regions may also be increasingly skewed in favor of high-income workers, which would put additional upward pressure on purchase and rental prices. Indeed, remote work tends to be concentrated in the “knowledge economy”, as for professionals, as well as for office and administrative employees.
The easing of restrictions has boosted domestic tourism, which may impact rentals. At the start of the pandemic, where travel and tourism were immediately hit, anecdotes emerged of short-term rental housing owners converting their properties to the long-term rental market. However, with the easing of restrictions on domestic travel, these properties have likely been converted back into the short-term rental market.
Although this trend is not apparent in all regions, data from AIRDNA show Geelong, Shellharbour and parts of the mid-north coast saw a decline in the number of short-term rentals from the March to September 2020 quarter. In these same areas, rental volumes have moved closer to pre-COVID levels in the March 2021 quarter.
Increase in property values. It is possible that the increase in demand for real estate property in the regions, whether for owner occupancy or for investment, has put upward pressure on rental values. This could happen as potential owner-occupants are evaluated by new entrants, which would add demand in the rental market.
Creating more affordable housing both in the Australian region and in major cities could ease rental conditions. Having well-dispersed affordable housing options can also serve to restrict internal migration due to affordability constraints. The challenge with solutions on the supply side is that they are relatively inelastic to meet very tight rental markets, especially in regional markets where the labor and material pool is often shallower. than that of the capitals. But in an environment where government programs have increased demand for private housing, social and affordable housing can also be an important source of activity for the housing construction industry.