The important question about rental prices in 2025
By Tom Watson
The Australian rental market continued to lose steam at the tail end of 2024, showing further signs that the recent price boom is past its peak.
New research released by CoreLogic reveals that, at the national level, rent values increased by just 0.4% over the final three months of 2024 - the smallest change recorded by the property data firm in a December quarter since 2018.
The research is the final piece in the puzzle confirming the slowdown in price growth that occurred over the calendar year, with the CoreLogic data showing that national rents grew by 4.8% in 2024 compared to 8.1% in 2023 and 9.5% in 2022.
Kaytlin Ezzy, an economist at CoreLogic, suggests that the lower rate of price growth recorded last year was largely a consequence of renters not being able to afford to keep up with prices.
"Rental affordability continues to be a significant drag on rental growth," she says.
"The net result has potentially seen some prospective renters delay their decision to leave the family home, while others have looked to form larger share households as a way of distributing the additional rental burden."
To put it into context, national rents have shot up by more than 36% since the beginning of the pandemic, according to CoreLogic - the equivalent of a $171 increase in the median weekly rent.
Growth in regions outpaces capitals
The cost of renting may have only edged fractionally higher at the national level during the December quarter, but growth across the combined capitals was even slighter (0.1%).
Rent prices went backwards in Australia's two largest cities. In Melbourne, the median rent declined by 0.5% during the last three months of 2024, while in Sydney, the median fell by 0.2%.
The opposite played out in most of the other capitals though, with Hobart (1.5%), Perth (1.3%) and Adelaide (1.2%) notching the highest rates of price growth over the quarter.
Regional parts of the country also recorded much stronger levels of price growth than the combined capitals, with increases of 1.2% across the combined regional areas during the December quarter.
Over 2024 as a whole, Melbourne and Sydney were also at the forefront of the easing rate of growth, though as Ezzy points out, some cities did buck the trend.
"Both major capitals saw the annual change in rents ease between December 2023 and December 2024, from 9.9% to 3.0% in Sydney and from 11.0% to 4.1% in Melbourne.
"Hobart and the ACT are the exceptions; both markets saw rents decline in 2023. Hobart rents fell -3.6% over 2023, but rose 6.0% in 2024, while Canberra's annual change in rents rose from -2.2% to 2.6% over the same period."
Rental yields remain stable
For property investors, last year proved to be another relatively steady period - at least, when it came to rental yields.
"At the national level, gross rental yields held relatively flat over 2024, oscillating a few basis points around the 3.7% mark. This marked the second year that national yields held at this level," Ezzy says.
Looking under the hood at the yield performance in each capital city though, Ezzy notes that it was much more of a mixed bag.
"Sydney was the only capital to mimic the national trend, with yields holding flat at 3.0% over 2024. Melbourne, Hobart, Darwin and Canberra all saw a rise in yields over the year, with rents outpacing values, while stronger capital gains in Brisbane, Adelaide and Perth saw yields fall."
Looking over the longer term, the 3.7% gross national rental yield from last year was higher than the recent low of 3.2% recorded in 2022, but as CoreLogic noted in its research, it was still below the 10-year average of 4.2% recorded before the pandemic.
Will rents rise or fall in 2025?
As we get into the full swing of 2025, one of the big questions on the minds of both renters and property investors is likely to be where do rent prices go from here?
Paul Ryan, a senior economist at REA Group, expects that rental prices are likely to continue to increase moderately in the short term, boosted by higher levels of demand in January and February from re-locating students and workers.
"We'll be watching the start of this year to see how it compares to last year, and that will provide a good idea about how the rest of 2025 is likely to evolve," Ryan says.
"But the trend we've seen over the last 12 months has been a really clear one of a slowdown which we expect to continue over 2025 with pretty moderate rent growth. It will also probably be the first year since 2020 that rents grow at a slower pace than incomes."
Ryan suggests that there are a couple of factors that could drive this. The first is an uptick in property investors entering the market which is likely to help increase the supply of homes for rent, but demand-side factors are also likely to dampen growth rates.
"On the demand side, we're seeing a little less demand from net migration and a little less demand because of affordability factors," he says.
"People either can't afford to bid up rents in the same way that they could 12 or 18 months ago. More people are also choosing not to enter the rental market at all - people that are living with parents for longer than they otherwise would, if they could afford to rent."
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