Following on from Episode 10's look at whether rents keep pace with property values over time, this episode responds to a detailed follow-up question from a listener, expanding the original national yield chart with additional context.
Recapping Episode 10
Jeremy recaps the original chart from Episode 10, showing 20 years of gross rental yield data (not net yield, which would be affected by varying expenses like council rates, insurance, and strata fees) for the nation, combined capital cities, and combined regional markets. If rent and property values grew perfectly in step, the yield line would appear flat over time; instead, the chart shows yield rising and falling in cycles.
A Detailed Follow-Up Question
A listener, Oil Baron 100, asks whether Jeremy could add a horizontal line of best fit showing the 20-year average or median yield for each category, and also plot median house price on the same chart, to give more context on when price growth is actually driving yield changes.
Expanded National Chart
Jeremy presents an updated version of the chart incorporating both requests. The long-term average gross yield sits at 4.2% nationally, lower for combined capital cities, and higher for combined regional markets, with a linear trend line added for each of the three groupings. Looking at those trend lines, national and capital city yields show a slight overall decline over the 20-year period, while the regional markets trend line is roughly flat. Jeremy cautions against reading too much into these straight trend lines on their own, since the underlying curves clearly show alternating eras where rent growth outpaces value growth, and vice versa.
Adding stacked area plots showing property value growth alongside the yield curves, Jeremy points out a consistent pattern: periods of sharp property value growth (such as through 2021) tend to coincide with dips in yield, while periods of declining or flat property values (such as from around the start of 2011 to the start of 2013) tend to coincide with rising yield.
The clear exception is the most recent year shown on the chart, where the national yield curve is rising at the same time property values are also rising nationally, because rents have been increasing at a faster rate than property values over that specific period. Jeremy notes this is a genuinely good period to be a property investor from a cash flow perspective, and that historically, large swings in yield tend to be driven more by changes in property values than by rapid rent movements, this recent period being a notable exception.
Comparing the Five Largest Cities
Turning to Sydney, Melbourne, Brisbane, Perth, and Adelaide individually, Jeremy notes four of the five show a declining trend line over the 20-year period, with Perth the exception. As with the national data, he cautions against over-weighting these trend lines, expecting them to eventually flatten out closer to horizontal over a longer time horizon, since the underlying cycles of rising and falling yield continue to play out. He estimates Sydney and Melbourne yields would need to rise by roughly another 0.5 percentage point to return to around 3.5%, translating to meaningful further rent increases (using Sydney as an example, roughly an additional $150–$170 a week depending on how much property values move over the same period), a trend he expects to play out gradually over several years rather than within a single year, meaning continued pressure on renters in the near term.
Damien notes Perth's stronger relative yield position appears to have drawn in more investors recently, particularly given the market's strong capital growth over the same period, making it an attractive combination for yield-focused buyers. Both agree the modest overall yield decline seen over the past 20 years (for example, regional markets moving from around 4.8% down to around 4.5–4.6%) isn't dramatic, and that with only 20 years of yield data available to analyse, a longer 30-year view would likely show these long-term trend lines sitting much closer to horizontal overall.
Closing Thoughts
Damien and Jeremy thank Oil Baron 100 for the detailed question and invite other listeners to submit further questions in the comments, encouraging likes, subscriptions, and shares for anyone who might benefit from the content.