THE NUMBER OF RENTAL VACANCIES IN THE METROPOLITAN AREA HAS DOUBLED IN SIX MONTHS TO 4066 AT THE END OF JUNE, ACCORDING TO REIWA. THE LIFT IN LISTINGS HAS PUSHED THE VACANCY RATE TO 3.2 PER CENT AFTER HOVERING BETWEEN 1.8-1.9 PER CENT IN 2012.
A vacancy rate in Perth of 3.2 per cent is generally considered the long-term supply and demand equilibrium for Perth. But, nonetheless, the significant increase in supply of rental stock has and will continue to restrict upward pressure on rents that were growing in excess of 10 per cent in 2012.
The inevitable easing of the Perth rental market is the outcome of three main factors.
Firstly, record first home buyer levels. More than 34 per cent, or 5,400, more first home buyers have applied for the FHOG over the last year compared to 12 months ago, and many of these FHBs would be leaving the Perth rental market.
Secondly, housing investment in WA has improved after reaching lows in 2011. Over the past 12 months, housing investment finance has increased 14.2 per cent, in WA, which represents an increase in sales of approximately 2,500-3,000 properties.
Thirdly, easing demand for labour in the state driven by the prospect of large declines in resource-related construction work is leading to higher unemployment and declining levels of immigration. The WA unemployment rate has trended up from a low of 3.7 per cent in May last year to 5.1 per cent, which equates to 20,000 more unemployed in the state. And the latest population estimates showed that 2,500 less migrants entered WA in the December quarter compared to the average of the previous three quarters.
Perth rents in historical perspective
The median rent in Perth increased 166 per cent over the last ten years from $180 to $480, which is significantly greater than inflation (34 per cent) and wage growth (52 per cent), but on par with the rise in the median Perth house price over the same period.
Rental market to ease throughout 2013
We expect demand for rentals to ease throughout the second half of 2013. Western Australians continue to take advantage of low interest rates and become home owners and immigration levels are likely to continue to decline. Reduced rental demand will put further downward pressure on rents and yields and discourage a number of potential investors, especially those that are not sanguine about capital growth.
Confidence in property overall should not be impacted greatly, with sales volumes to continue to climb throughout the year, but unlike the cyclical upswing in the middle of last decade, investors will not be a key driver of activity in Perth.