Why Rents Rise

Median rents throughout Perth are at $450 per week and vacancies are about 1 percent. Overall, rents have risen about 20 percent over the past twelve months catching many tenants off-guard, with some struggling to meet these rising costs.

It is worth noting that Perth’s rents remain the cheapest in the nation with tenants parting with about 19 percent of their weekly wages on rent. Median rents are still below the previous 2015 peak of $480 per week

Rents rise simply due to a lack of supply and an increase in demand. Currently, Perth has only 2257 homes advertised for lease on reiwa.com, 800 fewer than a year ago. Rising rents is clearly a supply issue.

In response to rents rising, tenancy advocates justifiably appeal to governments to intervene in a variety of ways including an increase in social housing and review of tenancy laws. They’re persuasive, because they’re getting both. $750m in more social housing and a ‘tenant-friendly’ review of the Residential Tenancies Act underway.

The Victorian State government changed their residential tenancy laws a few years back that added more protections for tenants and WA seems to be following their lead.

Many of the provisions introduced to tenancy laws in Victoria seriously erode the rights of the property owner. For example, property owners no longer have the right to end a tenancy upon finalisation of a fixed term lease without giving a legitimate reason such as moving back in themselves.

Other changes included the requirement for property owners to pre-warn tenants if they are intending to sell the property during the lease, allow a tenant to make “reasonable modifications” to the property and keep a pet without the permission of the owner.

Changing tenancy laws in this manner adds further pressure on rental markets because it impacts supply. Why? Because laws that go too far in favouring tenants inevitably erode the rights of property owners, which disincentivises investors, which reduces supply.

Private investors, most of them ‘mum and dad’ types provide about 80 per cent of rental housing in Australia. Social housing is only 3 percent of all houses, 37 percent is provided by these ‘mum and dad’ investors, the rest is owner-occupied. It follows that the less encouragement you give private investors to supply tenantable homes the higher rents will go.

In Victoria, with the pendulum of fairness swinging in favour of tenants at the expense of the people who carry the risk and cost of property ownership, investors turn to alternate vehicles of wealth creation such as shares, managed funds and superannuation. We are already witnessing this.

Rents will continue to rise unless the supply issue is addressed and tenancy laws remain fair to both tenant and owner.