Property values have soared in the past 20 years while rents lag

House prices across Australia have more than doubled in the past 20 years, however, rents have not been able to keep pace with soaring values.

The Real Estate Institute of Australia’s (REIA), Real Estate Market Facts: 20 years found the weighted average median house price for the eight capital cities increased 103.8 per cent to $1,011,208 adjusted for inflation from 2002 to 2022.

REIA President, Hayden Groves said the real median house price increased in all capital cities over the past two decades, with increases ranging from 75.4 per cent in Perth to a staggering 269.1 per cent in Hobart.

“Over the past 10 years, the weighted average median house price for the eight capital cities grew by 56.1 per cent,” Mr Groves said.

“The highest increase was in Sydney with a 91.7 per cent jump when adjusted for inflation and the lowest increase was 33.6 per cent for Adelaide

“Both Perth and Darwin had decreases over the past decade, down 10.2 per cent and 18.1 per cent respectively.”

Mr Groves said the median price for other dwelling types in the eight capital cities has also grown by 51 per cent over the past 20 years.

“Over the past 10 years the weighted average median other dwelling price for the eight capital cities grew by 19.6 per cent,” he said.

The median price for other dwellings increased in Hobart (59.2 per cent), Sydney (34.4 per cent), Melbourne (18.9 per cent), Canberra (14.6 per cent) and Adelaide (12.8 per cent), but decreased in Brisbane (-1.5 per cent), Perth (-23.7 per cent) and Darwin (-24 per cent).

Source: REIA

While home prices have been surging over the past few decades, rents have not kept pace, growing in value by around half.

Over the past 20 years, the weighted average median rent for three-bedroom houses in the eight capital cities increased 41.4 per cent to $506 per week when adjusted for inflation. 

The median rent for three-bedroom houses increased in all capital cities, ranging from 30.6 per cent in Melbourne to 84 per cent in Hobart.

Meanwhile, median rents for two-bedroom dwellings increased 39.3 per cent to $474 per week. 

The median rent increased in all capital cities over the past 20 years in inflation-adjusted terms, ranging from 26.1 per cent in Sydney to 90.9 per cent in Hobart.

Source: REIA

Mr Groves said over the past 20 years there have been 3,390,189 new homes built in Australia.

Of these, 63.7 per cent were new houses and 36.3 per cent were other residential dwellings.

“March 2012 saw the lowest number of new house completions (19,836) and September 2018 had the highest number (33,853),” he said.

“For other residential, March 2002 saw the lowest number of completions (7294) and December 2016 had the highest number of new completions (30,328).”

Source: REIA

According to Mr Groves, in June of 2002 the average median house price was six years of annual family income, in June of 2007 and 2012 it increased to around six-and-a-half years of annual income. 

By 2017 median house prices had jumped to over eight-and-a-half years of annual income.

“As of June 2022, the median house price was eight years and nine months of annual income. The highest house price to annual income was in December 2021 (nine years, two months) and the lowest was in June 2002 (six years),” Mr Groves said.

The report found that lending to investors was at its highest in June 2015 ($33.9 billion), equating to 45.1 per cent of all housing loans. It was at its lowest point ($15.2 billion) in June 2020 at the start of the pandemic.

The volume of lending to owner-occupiers was at its highest in June 2021 ($71.6 billion) and at its lowest in the March quarter of 2003 ($31.6 billion).

Notably, mortgage rates are now headed back towards the same levels that we saw 20 years ago.

According to the report, variable and three-year fixed interest rates were approximately 6-7 per cent in 2002 and now, as the RBA increases the cash rate, mortgage rates are headed back towards the same levels seen over a decade ago.

On a $500,000 25-year loan, monthly repayments would be $2503 at 3.5 per cent, increasing to $3222 per month at a 6 per cent interest rate, according to the report.

Source: REIA

While prices and rents have been rising, Mr Groves said more needs to be done to help struggling families who are relying on the government to supplement their rent.

“Commonwealth Rent Assistance is not keeping pace with rent increases,” Mr Groves said.

“For a family with two children, in 2002 rent assistance met 24.4 per cent of the median rent for a three- bedroom house whereas in 2022 this had reduced to 16.9 per cent. 

“The level of assistance varied across capital cities.”

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Rowan Crosby

Rowan Crosby is a freelance journalist specialising in finance and real estate.