This week, REIWA reported Perth’s residential rental vacancy rate dropped to a record low of 0.4 percent in March. A balanced market records vacancy rates at around 3.5 percent and in sharp contrast to early 2018 where vacancy rates were at 7.3 percent and over 12,000 properties were advertised for lease on reiwa.com. Today there are 1,963 advertised.
Median Perth rents are at $649 per week with properties offered for lease below this figure in higher demand than those above the median. Accordingly, properties advertised at less than $1000 per week are leasing in about two weeks, whereas those at above this figure take about 21 days to rent.
Core Logic shows Perth’s rental value is up 14 percent in the twelve months to March 2024, leading the nation amongst capital cities which averaged a 9.6 percent increase. Applied to Perth’s current median rent, a further 14 percent would see Perth rents hit $740 per week this time next year.
The core of the problem is the shortage of housing supply at a time when migration levels into WA are rising contemporaneously with deteriorating construction approvals for new homes. Apartment approvals are at decade low levels falling to around 375-unit approvals last month against our 10-year average of about 725 units.
Thankfully, investors are relatively active with 36 percent of mortgage demand in Western Australia coming from investors. This is up from the decade average of 24 percent and just 15 percent in 2019. The upside to this renewed investor enthusiasm is more rental stock coming into the market adding to supply, with the downside for first home buyers being investors buying stock that might otherwise have gone to them, which ultimately push up house prices.
And prices are rising most in typical first home buyer regions. Remarkably, 8 of the top 10 local government regions across Australia for annual price growth are in Perth with the affordable regions of Armadale, Gosnells, Rockingham and Kwinana the top four performers up between 25.8 percent and 28.6 percent. Serpentine – Jarrahdale, Wanneroo, Cockburn and Mandurah all made the top ten up around 23 percent.
In a balanced market, as house prices moderately rise, rents typically ease as first home buyers leave the rental market and enter home ownership. The opposite applies when interest rates rise and home prices abate, demand for rentals rise, pushing up rents.
Today’s market is different. Perth is experiencing a renaissance of sorts after a prolonged period of negative or negligible growth from 2009 to 2019.
During this decade, under-investment locally has caught us off guard with the speed of market recovery leaving us hopelessly short on supply during a time where construction costs remain a deterrent against meaningful and rapid increases in housing stock.
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May 3, 2024
Rent Bidding
As recently reported in these pages, the West Australian parliament passed into law changes to the Residential Tenancies Act designed to further protect the interest of tenants. Some of the changes bring WA into line with other states where substantial changes have altered tenant-landlord relationships and, in some cases, have deterred investment and pushed up rents. Many of the changes will be relatively benign, such as rent increases limited to no more than every twelve months (currently it is a minimum of six months). None of the laws encourage investors to further supply rental stock by improving protections for landlords from tenants that breach the lease agreement and / or wilfully damage the property. One of the changes will be to make it illegal for a landlord (or their property manager) to encourage a tenant to offer more rent to secure a lease. Known as ‘rent bidding’, in a tight rental market it is common for tenants to offer more than the advertised rent for a property. It’s important to note that the ban will not prevent a tenant from offering more rent than advertised. In other states, rent bidding is already banned, but the outcome of the ban has failed to afford any additional benefit for tenants. In the current market, most properties receive multiple applications to rent with many tenants prepared to offer more than the asking rent to secure the property. Under the current arrangement, tenants will typically seek guidance from the leasing agent as to what constitutes market rental value and without specifying the details of competing applications, tenants are able to secure a lease by offering a modest amount above the asking rent. With a ban on rent bidding, tenants will be ‘flying blind’. The leasing agent will have to be silent on proffering any advice as to the level of competition, or where the market sees value. What has occurred in other states is tenants are offering substantially more than the asking rent because the leasing manager is unable to guide them where fair market rent might lie. I am told desperate tenants in NSW will offer 20% above asking rent where a 5% increase would have been sufficient. Already, property managers are advertising asking rents with a “From” in front. This makes it more difficult for tenants to determine fair market rent, especially once rental bidding is formally banned. Mostly, landlords are seeking quality tenants at a reasonable rent. Many will choose the best tenant over one offering the highest rent. Property managers have a duty to their landlord to secure the best possible lease outcome for their client and the rent achieved is but one component. Banning rent bidding will do nothing to further the plight of tenants already dealing with a highly competitive, stressful market of limited supply and rising rents. Governments should spend their time thinking about how they can get more rental supply into the market by actively encouraging property investors. Everything else treats the symptom not the cause and rents will continue to rise.
Apr 24, 2024
Boom or Bust
Perth’s housing value surged past the $700,000 mark last month with year-to-date price now at $703,502. According to Core Logic, that puts us closer to Adelaide’s $734,173 but still behind Melbourne ($778,892) and Brisbane’s $817,564. Sydney’s nation leading $1,139,375 seems a long way off, but in the years 2006-2009, Perth’s and Sydney’s dwelling values were aligned around $465,000. Perth’s home values have increased 19.8 percent for the twelve months to March. Perth’s last strong market showing was back in the years 2012 – 2014 where housing values peaked at $518,737. Fuelled by the mining-construction sector which saw around 1,000 people per week flood into the state to take up high paying jobs, this boom came to an end when many of these workers returned home, limiting demand for housing. It took Perth from July 2014 to April 2021 to regain the 15.3 percent fall in housing values after prices fell to $440,841 in July 2019. From that trough to current peak, a span of less than five years, Perth’s property values are up by 59.6 percent. Greater Fremantle has put on 20.8 percent over the past twelve months. The current market is being fuelled from the bottom up. The top five performing local government areas in Australia are in Perth’s more affordable areas including Armadale, Gosnells, Rockingham and Kwinana. A two-bedroom duplex half recently listed in Rockingham is asking $449,000 sold three years ago for $260,000. The agent tells me she had offers site-unseen over $500,000 already. That’s a 33% gain over the past three consecutive years. These are worrying signs for our market. Perth has long been known as a ‘boom – bust’ market with strong gains normally tied to a specific event – a mining industry boom, for example - followed by a strangled demise afterwards. The boom years of 2004 to 2006 were testament to that when Perth put on 40.6 percent house price growth in 2005 only to be back where it started a year later. The question is, will this time be different? Whilst the pace of property value gains is following a similar pattern to previous booms, this time its is predicated on three major factors: Population growth, low supply and relative affordability and not a mining boom. Our quarterly change in population shows more than 20,000 arrivals, well above the long-term average. Core Logic’s analysis of monthly listing volumes shows inventories are at about half the decade average and, as already demonstrated, Perth remains more affordable than most of the nation’s capitals. These elements, underpinning Perth’s current market gains, will ebb and flow in the coming months. However, with supply levels still low and migration levels strong, the only thing likely to arrest this current trajectory in the short term is affordability and until our house values reach the early to mid- $800,000’s it seems unlikely affordability will impinge on potential future gains.