The rental rates in capital cities halted in the June quarter, showing no growth in the latest sign of a flailing property market.

In the June quarter, median capital city rents were flat with only two cities displaying increases in the same period, reiterating the sluggish activity in the property market.

Between January and June 2011, the median rents for capital cities—for residential properties and units—went up by 2.7 per cent to $380 a week. House rents in Sydney rose by 2.2 per cent in the quarter to a median price of $460 per week for a residential property, while in Perth they went up by 2.6 per cent to $400 per week in the same time.

Rents were flat in all other cities in the quarter. Hobart, where the median rent went down by 2.9 per cent, was the exception.

Many investors are aware that rental growth has been relatively subdued since 2008 due to a number of factors including stimulus from low interest rates and the First Home Owner’s Grant Boost which enticed prospective new home owners to buy and eased demand for rental.

2011 saw the real estate sector become sluggish amid softer house prices, with auction clearance rates below their 2010 peak of 80 per cent, and a far slower pace of building.

The nation is still encountering poor housing affordability and a persistent shortage of available houses for potential buyers in capital cities.

Rents for apartments were a little better with a 4.7 per cent increase in Sydney for the quarter, which amounted to a median of $450. In Melbourne, however, it was flat with a median of $350. The rents for apartments in Brisbane rose by 1.4 per cent in the quarter to $365, while those in Perth went up by 1.4 per cent to $375.

Many hope that this halt in rental yield growth is temporary and expect that, with limited new development during 2011 likely to add to the upwards pressure on capital city rental rates, rental growth will revert to around five year average levels, with inner city units and outer more affordable housing stock having the strongest prospects for rental growth.

A small bounce in housing construction is suggested by a 4.4 per cent rise in the number of home loans taken out in May. New home construction, along with loan growth, is commonly thought to signal a strengthening housing market.