Rental Market at Crisis…

Thus far I have been loathe to label the residential rental market’s current low vacancy, short supply and rising rents as a ‘crisis’. My reasoning is that once labelled a crisis, what does one call it if things get worse? A catastrophe perhaps? Irrespective of choosing an appropriate descriptor, it was inevitable that conditions for tenants was not going to improve anytime soon, hence my reluctance to label our current market a crisis.

Our leasing manager’s experience on the weekend may have changed my mind. A socially-considerate landlord wanted to rent his two bedroom Fremantle cottage ‘to someone really in need’ for $450 per week whereas the market would likely have paid around $600 per week. The result was 88 groups inspecting the property and 49 separate applications to rent it. That will mean 48 groups of people will be told their application was unsuccessful, many of whom will be all too familiar with that response.

The REIA produced Real Estate Market Facts: A 20-year report late last year which demonstrated market rents had increased nationally 31.4 percent in 20 years. Perth’s rents have increased 62 percent since 2002 for houses and 88 percent for apartments. Local vacancy rates are now at 40 year lows sitting at 0.5 percent, a long way from a market balanced 3.5 percent.

What’s most remarkable about this current market is very few policy makers and influencers saw it coming. I recall in early 2018, a mere five years ago, vacancy rates in Perth were 7.3 percent and reiwa.com adverted 12,000 rentals. There are fewer than 2,000 listed today.

A collision of COVID-inspired rental eviction and rent increase moratoriums, changes to residential tenancy laws, appealing superannuation top-up incentives, ageing population, building cost increases and delays, higher inflation, rising interest rates, rising land taxes and stamp duties, political posturing, landlord bashing and lacklustre investment in social housing has conspired to create a perfect rental storm crisis.

There are simply not enough homes to rent. Daft policies such as proposing a ‘rent freeze’ along with media and political hyperventilation around ‘greedy landlords’ are making the problem worse. Landlords are leaving the market, selling to owner-occupiers. They don’t like the ‘greedy landlord’ label. The proof is there are 18,000 fewer rental bonds being held by WA’s Bond Administrator today than there was in early 2020.

It is quite bizarre that investors, faced with achieving a peak market rent and almost zero vacancy would still be opting to sell rather than hold or buy. In time the market will work out that owning investment property is an invaluable part of a broad strategy in wealth creation. Investors will inevitably return to a buying mood at some point. My best guess is that will coincide with the inflation peak, stable property values and further rent rises, all of which ought to occur in the first half of this year.