Will Perth face a rental shortage?

Tuesday, 30th Oct 2018

Leading market indicators and a projected slowdown in rental supply indicate Perth could be facing a rental shortage within the next two years, according to our property experts at Momentum Wealth.

Perth property

New data from the Real Estate Institute of Western Australia shows Perth’s house rental rate rose by $10 in the September quarter to $360.

The increase in median house rent was accompanied by a further fall in rental vacancy rates, with vacancies reaching their lowest levels since March 2014 at 3.9%.

According to the Team Leader of our buyer’s agency division, Emma Everett, the improvement in Perth’s rental market could translate into more than a market recovery.

“The steep decline in vacancies and the stable rental rates recorded over the past year point to strong signs of a wider market recovery, with lower vacancies and increasing rates offering the prospect of higher returns for investors who make strong investment choices”

“However, these figures also hold wider implications when you take into consideration the projected lack of supply coming to market in the coming years,” she said.

Supply slowing down

Perth recorded a total 18,693 dwelling construction completions in the year to August 2018, down 43% from their peak in June 2016 and 21% from the same time last year.

Ms Everett said the decrease in dwelling completions is one of the fundamental reasons behind the decline in listings for rent across Perth.

“The continual decline in dwelling construction completions recorded since June 2016 is leading to a decrease in the number of new properties coming to market, with rental stock being absorbed at a faster pace and listings declining as a result.”

“Whilst we are already seeing the effect of this slowdown in supply, the low number of building approvals recorded over the past year indicates this trend is likely to continue,” she said.

A total 18,206 dwelling approvals were recorded in the year to June 2018, which marks a 45% decrease since their peak in December 2014.

“On average, it will take around two years before these building approvals translate into new supply entering the market in a rentable or sellable condition, which places investors in a strong position to benefit from increasing leasing activity as rental stock continues to decline,” Ms Everett said.

The Perth-ect storm?

The projected slowdown in rental supply is coupled with the prospect of a potential increase in demand from Perth’s growing population, which is expected to increase further off the back of high consumer confidence and rising investment in WA’s resources sector, with a survey conducted by The Chamber of Commerce and Industry WA revealing that consumer sentiment hit a five-year high in the September quarter.

This follows a rise in job vacancies and the GST reforms announced by the Federal Government, which will see an additional $1.4 billion allocated to WA in the next two years.

Ms Everett said rising investment in WA’s mining industry will continue to play a key role in driving population growth.

“With investment in WA’s key resources sector increasing as more of the industry’s major players announce new projects centred on WA’s mining resources, population growth will be well placed to continue, with this increase causing faster absorption of Perth’s declining supply”

“As rental vacancies continue to fall and leasing activity picks up, this will likely trigger an upward trend in rental prices as a result,” she said.

Team Leader of our property management division, Amanda Kroczek, said a shortage of rental stock in Perth could cause a significant increase in competition from tenants.

“The last time Perth experienced a significant rental shortage was in 2012 and 2013, when vacancy rates fell below 2%”

“During this time, it wasn’t uncommon for tenants to make competing offers on properties, with the increase in competition and shortage of stock pushing rental prices upwards and causing a steep increase in rental rates of $100 per week across a two-year period,” she said.

Ms Everett said these promising statistics should provide investors with more confidence in Perth’s property market moving forward.

“Whilst we are unlikely to witness the sharp increase in rental growth experienced in 2012, these encouraging prospects should give investors the confidence to enter the market and take advantage of the growth opportunities on offer,” she said.