Rents fail to keep up with house price rises

Westpac bank says that during the past five years house prices have doubled, while rents increased just 14 %, barely keeping pace with inflation and falling as a proportion of the average wage.

A graph in the bank's report shows little change in the relationship between rents and house prices from 1990 to 2002, but from then on house prices begin to pull increasingly further away.

A dramatic fall in rental yields had been cited as evidence the rental housing market must be out of equilibrium, but Westpac economists Brendan O'Donovan and Dominick Stephens said they begged to differ.

The fall in rental yields -- annual rent divided by house price -- was perfectly explainable by the fall in mortgage rates since the 1990s and the rise in the top marginal tax rate, they said.