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Why Is There A Rental Shortage In Perth?

More than 500,000 people have left Australia since the onset of the pandemic, and closed borders have brought immigration and tourism to a halt for the past two years.

So why are we in the midst of a nationwide rental shortage?

What’s happening in the Australian rental market?

Domain reports the national vacancy rate is 1.0% as of April 2022, the lowest since its records began in 2017. In contrast, the national vacancy rate was 1.9% in April 2021, significantly higher than the current figure but still well short of the 3.0% considered the sign of a balanced rental market.

Meanwhile, demand for rental homes is at record levels across Australia’s capital cities, according to the latest quarterly PropTrack Rental Report, with demand per listing increasing by 37.1% year on year. This increased demand is exacerbated by a decline in rental stock, with new capital city rental listings 14.4% lower in March than 12 months earlier. Nationally, new listing numbers are 12.5% lower than the 10-year average and well below the volumes seen in April 2020, at the start of the pandemic.

Strong competition for limited rental stock has resulted in properties leasing quickly. PropTrack figures show that across the country, the median number of days on site for a rental property hit a record low of 19 days in March, down from 23 days twelve months earlier.

A lack of homes for rent while demand is high also means rental costs are rising faster. Annually, house rents are up 9.0%, while unit rents have increased by 8.0% year-on-year.

And what about here in Perth?

We’re seeing these same trends play out here in Perth, too.

The Perth vacancy rate hasn’t been higher than 1.2% since mid-2020, according to REIWA, with Domain reporting it fell to 0.6% in April. This comes after February and March recorded vacancy rates of 0.5% – a historic low for Perth.

Just as it is across the country, demand for rental homes here is rising. PropTrack reports that demand per Perth rental listing was up 4.3% year-on-year in March, while the number of vacant rental listings recorded their lowest-ever levels in the same month, according to Domain. PropTrack reports that new listings numbers were 3% lower in March than at the same time the previous year.

Properties are leasing quickly as competition for rental homes continues to heat up. Days on site are at a record low here in Perth, at just 17 days. That’s two days fewer than in March 2021, when it was 19 days.

And, of course, these conditions have seen rents rising here in our city. Domain reports that Perth house rents spiked by 4.3% across the March quarter, putting them 11.6% up year-on-year and approaching the price highs of mid-2013. Unit rents, meanwhile, reached their highest level since 2014 in the March quarter after lifting by 2.6% across the three months and 8.1% since March last year. According to SQM Research, Perth’s median house rent reached $572 in May, while units hit $432.

What’s behind our nation- and citywide rental shortages?

Quite simply, there is a lack of rental stock. Demand for rental homes is outstripping supply.

Private property investors own the vast majority of Australia’s rental homes, but they have been selling up for several years now. It started in 2014 when banks began charging higher interest rates on investor loans, and it was exacerbated by the onset of the pandemic, which prompted many landlords to cash in their investments. Thanks to record low interest rates, many of these properties were snapped up by owner-occupiers, taking them out of the rental market altogether. The PropTrack report shows that approximately 20% of real estate transactions currently involve a landlord selling their investment property, but only 8% of these are being bought by other investors. That means many investment properties being sold are being lost from the rental market.

This issue is particularly acute here in Perth, with CoreLogic reporting that ABS data shows that only 27.5% of mortgage demand in WA currently comes from investors. This is significantly below the national average of 32.5% and the second-lowest percentage of investment activity of any Australian state or territory after Darwin.

At the same time, there are more tenants in the market for an Australian rental home thanks to the resumption of interstate and international migration now that our national and state borders are open once again. Before COVID hit, Perth had spent years losing residents to other states and countries. But we recently saw an eight-year high net gain of new residents coming to our city, which has contributed to the surge in rental demand here.

How is the future looking?

Experts agree that these trends are likely to continue for the time being. PropTrack sees rental demand remaining strong overall and even increasing in the capital cities as international arrivals continue to flow into the country. Meanwhile, Domain predicts these conditions will see Perth house rents reach a new record in the current June 2022 quarter.

However, in good news for tenants, the PropTrack report notes that property investment activity rose throughout the year to March thanks to low interest rates and continued rental growth. Although it won’t happen overnight, the hope is that this will mean more homes for rent, reducing the pressure on the market.

Market conditions here in Perth make it particularly appealing to investors. As CoreLogic reports, we have the highest average yields – 4.4% – of any Australian state capital. Coupled with good prospects for medium-term capital gains and a relatively affordable buy-in price (Perth has the second-lowest dwelling value of the capital cities, after Darwin), canny investors will be purchasing Perth property.

If you’re thinking of investing in Perth real estate, looking for a specialist property manager for your Perth investment property or hunting for your new Perth rental home, we can help. Get in touch with our experienced specialist team today.

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