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What’s Behind Perth’s Rental Crisis?

Many people are saying Perth’s rental market is in crisis.

And it’s hard to disagree.The citywide vacancy rate has been at or below 1% since late 2020. Since August last year, it has been below 0.5%.

At the same time, rents are soaring. In the past 12 months, the citywide asking rent for all dwellings rose 19.1% to $650. For houses, it grew even more, rising 19.9% to $726.

So what’s behind these figures? And what’s making life tough for the city’s tenants? We explore six trends behind Perth’s rental crisis.

1. Growing population

As with most markets, the price of rents is set by the laws of demand and supply. When demand outpaces supply, rents go up; when supply outstrips demand, rents go down.

It’s no secret that demand has been increasing over the past couple of years as Western Australia’s population grows and we bring more residents into our city.

In fact, last year, our state was easily the quickest-growing jurisdiction in the country, with our population increasing by 2.8% in the 12 months to March 2023, according to the Australian Bureau of Statistics.

That’s 78,3000 new residents in the state – the majority of whom will have moved to Perth, and all of whom need a home.

A disproportionate number of new arrivals will always be renters – at least for a while. So, these new Perthites are competing with existing residents for rental homes and contributing to demand.

2. Low listing levels

But while demand has been rising, supply hasn’t been keeping pace. In fact, there has been a sharp decrease in supply since late 2020.

In September 2023, there were just 783 rental vacancies advertised across the entire city (a vacancy rate of 0.4%), according to SQM Research. That compared with 1,978 vacancies in September 2020 and 9,735 vacancies in September 2017.

In other words, there are more people living in Perth and greater demand for investment properties. However, at the same time, the amount of stock available has plummeted.

3. Not enough investment properties

Perhaps because of its relative affordability, Perth has traditionally been an owner/occupier market. A 2016 CoreLogic study found that just 20.9% of all homes in our city were investor-owned. This is compared with 28.9% in Sydney, 32.2% in Melbourne, 28.6% in Brisbane and 42.9% in Darwin.

While property investors don’t always receive great publicity, they actually play an essential role in our housing supply. Too few landlords and too few investment properties puts even further greater on rents.

4. Insufficient development

Another factor that is very noticeable in Perth is that there hasn’t been enough development to cater for our growing population. When people build here, they often choose to do so in the outer suburbs (often near the coast). As a result, our city can now actually claim to be the longest city in the world, despite being less than half the size of Sydney or Melbourne and around one-fifteenth of the size of Tokyo.

Obviously, we can’t keep stretching on forever. We need more good development closer to the city where most tenants want to live. This includes infill developments in middle ring suburbs, as well as larger developments in the inner city suburbs and CBD. Some of this should even be designated as ‘build to rent’, as is happening in other Australian cities.

Without this development, there will always be too much pressure on rents.

5. Rising interest rates

Rising interest rates have also played their part in Perth’s rental crisis. As the price of servicing a mortgage rises, would-be first-home buyers become discouraged from leaving their rental properties. You can read more about the rent vs buy comparison in Perth here.

There’s also some suggestion they can also encourage landlords to increase the rent to cover their rising mortgage costs. Although, we believe this is overblown.

6. The COVID effect

Finally, COVID-19 had an impact on the property market in many ways. First, it meant a lot of people stayed put and chose not to move on, impacting the amount of property on the market and reducing supply.

Then, when people did decide to move on, it meant many prioritised lifestyle. We saw more people looking to rent homes with room to move or close to the amenities or lifestyle they desired. This further added to demand.

In other words, we’re still seeing the delayed effect of the pandemic in our property market – and may continue to do so for some time yet.

Want more?

If you want to invest in Perth real estate, rent out your Perth property or find your next Perth rental home, we can help. Get in touch with our specialist Perth property team today.

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