In this episode, Damien and Jeremy respond to a listener question from Chris, exploring whether rental yields remain consistent over the long term, and how rent growth and property value growth relate to one another.
The Listener's Question
Chris asks whether yields remain constant over longer periods (10, 20, or 30 years), whether yields eventually catch up to price growth, whether the same demand factors driving price growth also drive rents, and whether gentrification increases yields. Jeremy notes that gentrification specifically is too subjective a measure to test with available data, so his research instead focused on the more answerable question: whether rent grows at the same rate as property values over time, or whether a gap tends to emerge between the two.
What Is Rental Yield?
Jeremy explains rental yield as the total annual rent received from a property divided by the property's value. Using an example of $500 a week in rent ($26,000 a year) on a $500,000 property, that works out to a 5.2% yield.
He then illustrates the two ways yield can shift: if the property's value falls (say, from $500,000 to $400,000) while rent stays the same, the yield rises to 6.5%, but this reflects a falling market rather than a genuinely attractive one, so a high yield isn't automatically a sign of a healthy market. Alternatively, if rent rises (say, from $500 to $600 a week) while the property value stays the same, yield also rises, in this case to 6.24%, reflecting genuine rental growth. If both rent and property value increase proportionally (say, rent from $500 to $600 a week, and value from $500,000 to $600,000), yield stays the same, since both figures have grown at the same rate.
Twenty Years of National Yield Data
To directly test Chris's question, Jeremy charted the national median rental yield from 2004 to February 2024 (the earliest reliable yield data available, limiting the analysis to a 20-year window). The data shows yield moving in cycles, rising and falling over time, and currently sitting slightly below its 20-year average. Jeremy notes a clear peak in yield around 2012–2013 (where rent growth most outpaced property growth over that period), while more recently, rent growth has again started to exceed property growth, pushing yields back up after a period of decline.
Jeremy attributes the yield decline seen through the 2010s partly to historically low interest rates encouraging strong buyer demand, which pushed up prices faster than rents, and partly to a period during COVID where rental demand softened in certain areas (citing high-rise unit-heavy areas like Docklands and Alexandria as examples), as vacancy rates temporarily rose. Since then, rent growth has picked up substantially, partly as landlords adjust to higher interest costs, pushing yields back toward more typical levels. Regional markets, while following a broadly similar cyclical pattern to combined capital cities, have generally maintained higher yields throughout.
Comparing the Five Largest Capital Cities
Looking at 20-year yield history for Sydney, Melbourne, Brisbane, Perth, and Adelaide individually, Jeremy notes all five broadly follow a similar overall pattern, though Sydney and Melbourne in particular saw yields decline over much of the past decade-plus, before rents climbed sharply over the last year or two amid very low vacancy rates. Perth stands out as the only one of the five currently sitting high relative to its own 20-year history, suggesting (in Jeremy's view) that Perth rents may already be closer to a more typical level, whereas the other major capitals may still have further rent growth ahead simply to return to what would be considered historically normal.
What This Means for Investors
Jeremy stresses that yield fluctuates across different eras, sometimes growth leads and yield lags, sometimes the reverse, and that these swings are a normal part of the ongoing balance between supply and demand. He describes this as a self-correcting cycle: when conditions push investors out of the market, rental supply tightens, vacancy falls, and rents rise in response to continued tenant demand, which in turn draws investors back in, without needing government intervention to correct itself. He acknowledges that periods of imbalance can create genuinely difficult conditions for renters in the interim, even though the system tends to balance out over time.
Asked whether he'd use rental yield directly to decide on a property purchase, Jeremy explains he'd primarily use it to understand the practical impact on personal cash flow (for example, how a 4% yield on a $500,000 property affects monthly surplus before and after purchase), rather than using yield as a predictor of future capital growth. He notes yield isn't generally one of the strongest indicators of future capital growth, though it can sometimes act as a useful precursor, since the same demand-and-supply imbalance that drives up property prices (driven by factors like schools, amenities, or affordability) often influences renter demand too, even if not always at exactly the same time. His overall view is that in a market where demand genuinely exceeds supply, both prices and rents tend to rise together over time.
Closing Thoughts
Damien and Jeremy thank Chris for the question and invite other listeners to submit questions for future episodes, encouraging engagement through likes, comments, and subscriptions.