Percentage Rental Growth
What is the PRG?
PRG stands for Percentage Rental Growth. The PRG is the percentage increase
in the typical rent over the last 12 months.
For example 12 months ago rents may have typically been $400/week and now they are $440/week.
That means rents have grown by 10% and the PRG would therefore be 10%.
The PRG is a precise figure for what many refer to simply as "rent growth".
Why is the PRG important?
It's a big decision to buy a property and it takes a lot of commitment to get a mortgage. Getting
a lease on the other hand is relatively easy. This makes renters far more agile than owner occupiers.
A location may become popular for a number of reasons: new transport infrastructure, jobs, education, lifestyle, etc.
When a location does undergo a change, it is the renters that move in first.
With limited accommodation an influx of renters may reduce vacancy rates. This of course places pressure on rents
to go up.
Since buyers are still getting their act together, rents can climb without any pressure being applied to
property values. This will translate to an increase in yields. Higher yields are attractive to investors.
With the market now appealing to owner occupiers and investors, prices start to rise.
An increase in rents is a sure sign that a market is attractive to renters. However, it does not immediately
translate to buyers. Some people rent because they have to live in a location for work or education. But if it
is temporary, they will not choose to buy there.
For prices to rise, buyers need to want to buy there. A market purely based on renters may be a risky one for investors.
Check the proportion of renters to owner
occupiers.
Is the PRG reliable?
Unfortunately, the PRG is unreliable in thinly traded rental markets.
These are the markets investors are more likely to find appealing, those in
which the proportion of renters is low.
However, so long as the number of new leases in a market exceeds about 40 per year, the PRG should be reasonably reliable.
Base data and other sources
Some alternative sources for this kind of data include: