Perth's rental vacancy rate dropped to 2 per cent in March, down from 2.6 per cent in December and January and 2.2 per cent in February, according to the Real Estate Institute of Western Australia (REIWA). The decreases are concerning, with rental supply under threat due to three potential policy changes.
Policy changes targeting investors
Adequate supply is key to a healthy rental market, and in Western Australia, investors provide 86.1 per cent of private rental supply. However, they are being targeted by both the State and Federal Governments. At the Federal level, changes to the Capital Gains Tax discount and negative gearing are almost guaranteed at the next budget, while a recent news story teased a change to no grounds terminations at the State Government's May budget.
The ongoing speculation around these changes is causing a lot of uncertainty for investors, and REIWA members are now reporting some are pulling out of the market to put their money into more stable assets.
Rental supply still below peak
The Western Australian rental market has not fully recovered from the last mass exodus of investors. While there has been an increase in supply in the last two years, the estimated number of rentals remains below the peak recorded in early 2021. In addition, the increases have not been uniform across Perth. The most improvement has been in outer suburbs where investors have bought house-and-land packages. It is closer to the city, where many people want to live, that we have seen the greatest decline in supply.
Another drop in supply will be detrimental for tenants. The vacancy rate will fall further, competition for property will increase, and there will be more upward pressure on rent prices.
Building industry and NRAS issues
Compounding REIWA's concerns for the rental market are the growing issues in the building industry due to the conflict in the Middle East, and the end of the National Rental Affordability Scheme (NRAS) in June. The war is already affecting the cost to build a home. It is also affecting the supply of land and will delay completions due to increases in development costs.
As we saw during COVID-19, when the new homes market is constrained, the rental market bears the brunt as the system's shock absorber, accommodating households who are unable to move into completed properties.
Further, the completion of the NRAS will see about 1500 affordable rentals return to market rates. If rental supply declines further, these tenants will face significant affordability challenges. Many may try to turn to social housing, which we know has a long waiting list.
Call for stable policy
We all want better outcomes for tenants. The way to achieve that is with stable policy settings and a focus on creating new supply, not by targeting investors.
