Last week we revealed some of the top performing sales markets throughout 2020 and this week we turn our attention to the rental market. Whilst not always receiving the same number of headlines as the sales market, the rental market has been arguably more susceptible to changes in demand and price throughout the Covid-19 pandemic.

As most would be aware, the Queensland Government acted to protect tenants who were negatively impacted by Covid-19 through a six-month eviction moratorium for rent arrears, which expired recently on the 29th September. During this period, and still to this day, landlords were also simply encouraged to work with their tenants to accommodate changes in their financial or personal scenarios, be it through temporary reductions in rental rates or other adjustments to their rental agreement. Whilst this has provided a welcomed safety net for those who have been adversely affected by the Covid-19 downturn, it has also created significant headwinds for rental price growth throughout 2020. Accordingly, those markets that have been able to record positive rental price growth despite these challenges are worthy of special mention.

This article will form a three part series which highlights Queensland’s top performing rental markets in terms of annual median weekly price growth for houses, townhouses and apartments between the September quarter of 2019 and the September quarter of 2020. The top three postcodes will be examined in greater detail across the most common product type for all three dwelling structures, which includes two-bedroom apartments, three-bedroom townhouses and four-bedroom houses.

Top House Markets

The table below provides a summary of Queensland’s top three postcodes in terms of rental price growth for four-bedroom houses between September 2019 and September 2020. Four-bedroom layouts have been chosen for examination due to the fact that they have accounted for 47% of all new bonds lodged for rental houses in the last quarter, slightly ahead of three-bedroom layouts at 46% and two-bedroom layouts at just 7%. Furthermore, it should be noted that in order to eliminate any skewed results, only postcodes that recorded a minimum of 20 new bonds in the September quarter of 2020 were included in the following analysis.

Notably, each of the top postcodes for house rental price growth are largely focused in regional areas of Queensland, including the Central Highlands, Gladstone and Noosa, with no Brisbane or Gold Coast based postcodes featuring in the top 3. Whilst much has been made about a surge in enquiry for coastal, lifestyle driven locations through a rise in teleworking, two of Queensland’s top three house rental markets do not adhere to this theory. Instead, the 4717 and the 4680 postcodes are largely occupied by blue collar workers in the resource sector, which has provided some level of resilience against growing unemployment rates throughout Covid-19. However it is also acknowledged that Blackwater may come under pressure from China regarding demand for Australian coal as part of a broader dispute.

4717 Postcode

The 4717 postcode hosts the town of Blackwater, which is located within the Central Highlands Local Government Area and is regarded as the Coal Capital of Queensland with the regional town being located within reach of no less than 15 of the States 70 ‘Large Resource Projects’. In terms of operational employment, the Mining sector has arguably faced less disruption relative to other segments of the Australian economy throughout Covid-19 up to this point. The remote locations of mining operations and the long established and sustained focus on occupational safety throughout the industry has seen many mining firms able to adapt to changing work conditions without significant disruption to their operations. This has played some part in limiting unemployment growth in regions like the 4717 postcode in recent months, although the medium to longer term outlook remains clouded by reduced demand through weakened global economic growth and strained political relationships between Australia and our largest trade partner, China. In addition, global climate change continues to place pressure on coal as a power source, though it is difficult to see a complete abolition of this cheap energy.

The median weekly rental rate for four-bedroom houses in the 4717 postcode has increased by 21% between September 2019 and September 2020, whilst vacancy rates have dropped from 3.8% to just 0.7%. The performance of the local rental market has been buoyed by resilience in the resource sector, as well as being spurred on by targeted Government packages to support more jobs in the gas industry. In May the Federal Government released more than 6,700 square kilometers of land for gas exploration, with 12 prospective parcels of land opened to tender across Queensland’s Bowen and Surat basins. Blackwater has been a key beneficiary of this release, with more than 39% of this land concentrated between Blackwater and Banana. This land release was partnered with a multi-million dollar package that included a 12-month waiver of rent on exploration land, a freeze on fees and charges until 1 July 2021 and also brought forward $2.8 million in grant funds for innovative exploration in the North West Minerals Province. In a market that entered Covid-19 with stable vacancy rates and is reliant on an industry that has been able to successfully implement Covid-Safe protocols, these Government initiatives are likely to have bolstered local rental price growth as Australia again seeks to enter a phase of construction mixed with production gains created throughout the last resource boom which is nearing a decade ago.

4567 Postcode

Those who read our article last week will not be surprised by the strong performance of house rents in the 4567 postcode, which hosts two suburbs that ranked in the top five for house sales performance in 2020 (Sunrise Beach & Sunshine Beach). As discussed last week, the housing market in and around the idyllic coastal town of Noosa has continued to prosper throughout the Covid-19 downturn. Much of this resilience has been attributed to the high number of retirees that live in the broader region and an otherwise highly skilled workforce with close ties to some of the less vulnerable Education and Health Care sectors.

The high proportion of wealthy retirees in the Noosa Local Government Area is best reflected by the fact that more than 42% of working aged residents take no part in the labour force, despite hosting an expensive 2020 median house price of $848,500. On top of this, a third of those who are active in the workforce are employed in either a professional or managerial capacity. As mentioned in last week’s article, the greatest job losses throughout the Covid-19 pandemic have generally occurred at the bottom of the employment chain, whilst those at the top end of town have been less exposed, particularly in the Health Care and Education sectors which accounts for over 22% of Noosa’s total workforce. With a high portion of retirees and a skilled workforce comes less exposure to downturns in jobs and thus some level of rental price resilience.

Rental price growth in the 4567 postcode has also been spurred on by a surge in local renovations and improvements in recent years, particularly in Sunrise Beach as its reputation continues to grow as a more affordable alternative to Noosa or Sunshine Beach. It should also be noted that the rental market is quite small and very tightly held for long stay accommodation. Due to the scarcity of rental accommodation, it is highly likely that the next quarters data will see another improvement in weekly rents.

4680 Postcode

The 4680 postcode is home to the industrial powerhouse of Gladstone, which has seen its median weekly rental rate for four-bedroom houses increase by 17% between September 2019 and September 2020, from $290 to $340 per week. Much of the sentiment shared for the 4717 postcode is also of relevance for the Gladstone region, which plays an integral role in servicing the resource sector and hosts one of the country’s largest multi-commodity ports, the port of Gladstone. Despite retractions in global demand towards the back end of the recording period, the total volume of exports leaving the port of Gladstone remained near record highs at more than 102 Million tonnes throughout the 2019-20 Financial Year. A steady flow of exports leaving the Gladstone Port is generally regarded as a positive economic indicator for the local community, with many of its local businesses linked to the flow of resources out of Gladstone.

Some stability in the resource sector has combined with a local housing market that has endured a long road to recovery from the oversupply that fell out of the resources boom of the early 2010s’ and was caused by investment property spruikers chasing FIFO and DIDO rental yields. In recent years, the Gladstone property market has slowly absorbed much of the previous oversupply and now finds itself in a much more balanced state, with the 4680 vacancy rate trending downwards from a peak of 12.3% in April 2016 to an eight year low of just 1.1% in August 2020. Whilst the recent 17% rise in rents is significant, it is more a reflection of a market that corrected, stabilized and has returned to growth than a reflection of a market that is surging in value. This point is best highlighted by comparing the current rental rates with those achieved back in June 2012, when the median weekly rental rate for a four bedroom house was almost twice as high, at $650 per week.

Overall housing demand has continued to be relatively strong across many regions, though the predictions of a collapse in the early phases of the Covid-19 pandemic seem to have been unfounded to date. Just as the most common word utilized in 2020 seemed to be “unprecedented”, perhaps the word of 2021 will be “unfounded” or “resilient” when it comes to the residential property market.

Tasman Nealon | Property Economist

Queensland’s Top Rental Markets in 2020 : Part 1 Houses

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