Housing affordability lifts rent prices on Sydney’s fringes: Domain Group report

Sydney’s ongoing housing affordability issue has pushed up asking rents on the outskirts of Sydney as tenants look to get more bang for their buck, swapping inner-city apartments for houses in suburbia.

While the cost of renting a house in some parts of Sydney hasn’t changed at all in the past year, rentals in far flung areas like the Blue Mountains, Central Coast as well as Sydney’s west saw some of the biggest jumps in price across Greater Sydney in the three months to March.

Property investor Douglas Lei bought his first apartment in Western Sydney and isn’t worried about rent dipping in the region.

Photo: Peter Rae

Renters in the Blue Mountains would have felt the biggest pinch over the last quarter with rent prices increasing by 4.7 per cent – or $20 a week. On the Central Coast rents increased at their strongest level of annual growth since 2011, at 5.9 per cent, according to the Domain Rental Report March 2018.

Meanwhile the price of renting a house in the Sydney’s city and eastern suburbs, south, upper north shore didn’t change.

Asking rents increased in the Blue Mountains, Central Coast and Western Sydney because of housing affordability, according to experts.

Photo: Pat Scala

Experts said the rising cost of housing was spilling over into Sydney’s fringes because people who were priced out of inner city markets were beginning to compete for the last frontier of affordable houses.

“Tenants are opting to move out further to get more value for their rent. It really does reflect what we’re seeing in terms of the population of Sydney and the migration to the lower-priced markets,” Domain Group data scientist Dr Nicola Powell said.

Now that the price of renting an apartment in Sydney costs the same as owning a house, there was increased demand for suburban houses that offered better value, she said.

BIS Oxford Economics senior manager of residential property Angie Zigomanis said there was generally a shift in demand for more affordable suburbs when people are increasingly priced out of other areas.

“The rising rents in middle Sydney areas are starting to play through and people are moving out to some of the more affordable areas because price points are starting to get beyond them in the middle suburbs,” he said.

Western Sydney recorded an increase in rent of 4.4 per cent growth for houses and a 2.3 per cent rise for units. But unit prices dipped by 1.5 per cent in the past quarter.

That hasn’t worried property investor Douglas Lei who purchased his first apartment in The Lennox building in the Western Sydney suburb of Parramatta.

He has built a property portfolio in the last decade with 10 investments mainly in Redfern and Surry Hills. But he believes such perennially popular inner-city suburbs may have reached their limit with what landlords could demand in rent.

“The traditional areas will still have that rental demand but I’m actually asking myself in five years time for a one-bedroom apartment in Surry Hills how much more can you ask people to pay?” Mr Lei said. He recently leased a one-bedroom apartment in Surry Hills with no car space for about $800.

Instead, about 18 months ago he decided to branch out west to capitalise on growth in the area. Mr Lei believed rents would only increase in years to come as construction projects were completed.

“Once Parramatta Square is up and running in two or three years time, I’m actually picturing the [huge] number of tenants that will need quality properties within 400 metres of the centre,” said Mr Lei.

While city and eastern suburbs rents didn’t increase at all, the median asking price for the area continued to be among the highest across Sydney, costing renters $1100 per week.

The other two Sydney regions to experience a jump in rental prices for houses were the lower north shore and the northern beaches. They recorded a 10 per cent and 5.3 per cent growth year on year, respectively.

Both Mr Zigomanis and Dr Powell put it down to a lack of housing supply in those regions.

“Part of the problem is supply as it’s harder to get new stock and there’s big resistance to get development through,” Mr Zigomanis said.

“The lower north shore saw 5.5 per cent decline in the level of advertised stock over the quarter and really minimal growth in listings year on year, it was only 3 per cent,” Dr Powell said.

She said the seasonal effect of increased demand during the warmer months could have also pushed rental prices higher on the northern beaches.

Simon Pressley, managing director of property research firm Propertyology, said there was significant potential for rent across Sydney to ease in years to come because of the record amount of residential construction.

“There’s a lot more supply to be added to the rental pool. All the building stock will wash through the rental market,” Mr Pressley said.

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