Rents Up, But Only Now

It is widely known that rental prices across Australia are rapidly rising with many tenants struggling to find affordable accommodation. Vacancy rates nationally are hovering around 1 percent and falling. In Perth, REIWA reports a vacancy rate of 0.7 percent where a balanced market would typically have vacancy rates as about 3.5 percent.

There is no doubt, as confirmed by the federal Housing Minister, Julie Collins this week, that the root cause of rising rental costs is lack of supply. The Prime Minister, in an effort to get his $10b Housing Australia Future Fund through the Senate by placating the Greens, announced state and territory Housing Ministers will get together and discuss ‘renters’ rights’.

At national approach to residential tenancies is, in itself, not a bad idea but any move to introduce additional regulation that disincentivises supply of housing, would make the rental crisis worse. As previously mentioned in this column, private investors supply 27 percent of all rented homes in Australia. The government provides 3 percent and the rest is owner-occupied. Investors will only ‘buy and supply’ if there is enough incentive to do so. Remove that incentive and the government will have to supply the housing shortfall – an implausible task.

The property owner takes on all the risks and costs of the property and anticipates a reward of capital gain down the track. In an effort to bring into balance the naturally superior rights of the property owner, tenancy laws here and across Australia are moderately tipped in favour of the tenant.  But tip that advantage too far and investors sell out, leaving a supply shortage and rising rents. This is exactly what is unfolding right now in most cities across the nation.

Locally, median house rents have risen 19.8 percent in a year – a substantial gain. However, policy makers that may be considering panicked policy responses that make matters worse, ought to reflect on the past decade. The reality is rents in Perth are only now catching up from a decade of flat or falling rents.

In May 2013, median house rents were $460 per week. Nine years later, median house rents were $460 per week. That’s not a typo. Rents had drifted to $370 per week by May 2017 and stayed stagnant through to May 2020. If averaged across the past decade, rents in Perth have risen by $9 per week per year.

Perth is becoming an attractive destination for property investors with median house prices at $560,000 and rents offering strong yields and solid returns. Tenants should welcome that, giving them the opportunity to find more affordable rental homes as supply begins to rise. Government could do their bit too by looking for incentives to encourage more investors into the market.