AUS: Residential rent growth still too strong, will be reflected in Q1 2024 CPI
Key points:
Asking rents rose 0.7% m/m in January on our seasonal adjustment, a similar pace to prior months
With the impact of the rental subsidy unwinding in Q1 2024, CPI rents should rise strongly
That will mean Q1 2024 trimmed mean inflation should be higher than yesterday’s Q4 2023
Dwelling prices rose 0.4% m/m; Sydney and Melbourne subdued, but other areas see strong growth
Details:
Normally it is dwelling prices that get top billing with the CoreLogic data. However, this month we focus on rents given their importance in the CPI basket and the role the rental subsidy played in weighing down core measures of inflation in Q4 2023. The ABS noted yesterday that CPI rents rose 0.9% q/q in Q4, driven by changes to rent assistance. Excluding changes to rent assistance, rents would have increased by 2.2% q/q, reflecting strong demand and low vacancy rates. The rental subsidy subtracted around 0.1 points from core measures of inflation, and nearly 0.1 points from headline given their 6% weight in the CPI basket.
Asking rents which are not impacted by the rental subsidy show that the underlying pace of rents continues to grow strongly. Rents rose 0.7% m/m in January on our seasonal adjustment, a similar pace to the monthly growth rates seen since October 2023. Accordingly, CPI rents for Q1 2024 should be closer to the 2.2% q/q pace that the ABS noted would have occurred without the rental subsidy. There is also a yawning gap of around 21 percentage points between where CPI rents are and where asking rents are. Some of that gap reflects the rental subsidy, but largely reflects the lagged impact of prior rental agreements.
Other details:
Dwelling prices rose 0.4% m/m and 8.7% y/y in January. Notably that 0.4% m/m pace of growth is a tenth higher than the 0.3% rate recorded in December and November. The details show there has been considerable price growth in the lower price tier which rose 0.6% m/m and 8.8% y/y. In contrast the higher price tier rose 0.3% m/m and 9.5% y/y, while the mid-priced tier was 0.5% m/m and 7.8% y/y. By capital city, price growth was strongest in Perth (1.6% m/m and 16.7% y/y), Adelaide (1.1% m/m and 10.3% y/y) and Brisbane (1.0% m/m and 14.8% y/y). Price growth was slower in Sydney (+0.2% m/m and 11.4% y/y). Prices actually went backward in Hobart (-0.7% m/m and -0.4% y/y), Canberra (-0.2% m/m and 1.2% y/y), and Melbourne (-0.1% m/m and 3.9% y/y).
As for the outlook for prices, NAB continued to expect a 5% rise over 2024 and a slightly smaller gain in 2025. The demand/supply imbalance is likely to remain a key support in the short term, while expected rate cuts in late 2024 will provide additional support in 2025. More broadly, the economy has remained healthy despite a slowing in growth and with the unemployment rate remaining relatively low, we see a soft landing and the RBA cutting rates by around 125bps over 2025. For further details on NAB’s outlook for property prices, please see NAB Quarterly Australian Residential Property Survey Q4 2023 which was published this morning.
Courtesy of NAB Markets Research
