As recently reported in these pages, the West Australian parliament passed into law changes to the Residential Tenancies Act designed to further protect the interest of tenants.
Some of the changes bring WA into line with other states where substantial changes have altered tenant-landlord relationships and, in some cases, have deterred investment and pushed up rents. Many of the changes will be relatively benign, such as rent increases limited to no more than every twelve months (currently it is a minimum of six months).
None of the laws encourage investors to further supply rental stock by improving protections for landlords from tenants that breach the lease agreement and / or wilfully damage the property.
One of the changes will be to make it illegal for a landlord (or their property manager) to encourage a tenant to offer more rent to secure a lease. Known as ‘rent bidding’, in a tight rental market it is common for tenants to offer more than the advertised rent for a property. It’s important to note that the ban will not prevent a tenant from offering more rent than advertised.
In other states, rent bidding is already banned, but the outcome of the ban has failed to afford any additional benefit for tenants. In the current market, most properties receive multiple applications to rent with many tenants prepared to offer more than the asking rent to secure the property. Under the current arrangement, tenants will typically seek guidance from the leasing agent as to what constitutes market rental value and without specifying the details of competing applications, tenants are able to secure a lease by offering a modest amount above the asking rent.
With a ban on rent bidding, tenants will be ‘flying blind’. The leasing agent will have to be silent on proffering any advice as to the level of competition, or where the market sees value. What has occurred in other states is tenants are offering substantially more than the asking rent because the leasing manager is unable to guide them where fair market rent might lie. I am told desperate tenants in NSW will offer 20% above asking rent where a 5% increase would have been sufficient.
Already, property managers are advertising asking rents with a “From” in front. This makes it more difficult for tenants to determine fair market rent, especially once rental bidding is formally banned. Mostly, landlords are seeking quality tenants at a reasonable rent. Many will choose the best tenant over one offering the highest rent.
Property managers have a duty to their landlord to secure the best possible lease outcome for their client and the rent achieved is but one component. Banning rent bidding will do nothing to further the plight of tenants already dealing with a highly competitive, stressful market of limited supply and rising rents.
Governments should spend their time thinking about how they can get more rental supply into the market by actively encouraging property investors. Everything else treats the symptom not the cause and rents will continue to rise.
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May 10, 2024
More Edge Tinkering
The Cook government is trying to rebalance Western Australia’s rental market. There has been a flurry of affordable housing-related policy announcements recently to address surging rents and low vacancies. REIWA assesses Perth’s vacancy rate at 0.6 percent, a long way from a market parity 3.5 percent. The latest announcement aims to encourage property owners to convert their vacant homes into long-term rentals by offering a one-off $5,000 payment. Sorry to be cynical, but a property owner who can afford to leave their property vacant (Granny / Fonzie flats or vacant rooms are ineligible) for a period of longer than six months, doesn’t need a lazy $5,000 to convince them to lease it. The policy comes off the back of the recent Short Term Rental Accommodation (STRA) Incentive Scheme, which encouraged owners to convert their property from the short to long term market with a $10,000 payment. So far, 150 properties have converted their properties into the long-term market or a minute 0.05 percent of rented properties across WA. In announcing the latest policy, Premier Cook acknowledges the “significant demand for housing” and has committed to “leaving no stone unturned in our work to boost supply of homes.” Responsible Ministers shared the limelight with Treasurer Saffioti suggesting, “This initiative has the potential to bring up to 1,000 properties back onto the rental market.” Commerce Minister Ellery reckoned the STRA Incentive Scheme has been “a success” and Minister Carey (Planning and Housing) reflected on his government “continuing to think outside the box…to boost housing supply.” To give credit where credit is due, at least the government is doing something and, in this market, something is better than nothing. Unsophisticated private investors – ordinary West Australians – supply 27 percent of all homes to tenants, about 264,000 properties. Government supply about 3 percent. In this time of greatest need, with supply of rental homes at severe lows, these recent housing policies that seek to encourage the investor cohort into supplying more homes will barely scratch the surface. Meanwhile, big-ticket items that would significantly move the needle on supply are ignored. Stamp duty - where bracket creep means an investor tax of $27,000 at Perth’s median house price - and land tax rebates are obvious places to start. And why not (even temporarily) repeal the foreign investor tax where these buyers pay $76,000 in state tax when buying a $700,000 property? This group, very sensibly, choose to rent rather than pay the tax, soaking up valuable rental stock. Put simply, governments – supported by the media and tenancy advocates – have been busily whacking investors, whilst simultaneously failing to provide enough rental housing for West Australians as the only possible alternative to the private investor market. WA’s poor market performance in the years 2012-2020, has left our housing market underprepared for the surge in new arrivals and we’re playing catch up. There is time for meaningful reform to encourage investors into the market to add more supply and whilst relatively small cash incentives may tinker around the edges, they won’t make a meaningful impact.
Apr 24, 2024
Boom or Bust
Perth’s housing value surged past the $700,000 mark last month with year-to-date price now at $703,502. According to Core Logic, that puts us closer to Adelaide’s $734,173 but still behind Melbourne ($778,892) and Brisbane’s $817,564. Sydney’s nation leading $1,139,375 seems a long way off, but in the years 2006-2009, Perth’s and Sydney’s dwelling values were aligned around $465,000. Perth’s home values have increased 19.8 percent for the twelve months to March. Perth’s last strong market showing was back in the years 2012 – 2014 where housing values peaked at $518,737. Fuelled by the mining-construction sector which saw around 1,000 people per week flood into the state to take up high paying jobs, this boom came to an end when many of these workers returned home, limiting demand for housing. It took Perth from July 2014 to April 2021 to regain the 15.3 percent fall in housing values after prices fell to $440,841 in July 2019. From that trough to current peak, a span of less than five years, Perth’s property values are up by 59.6 percent. Greater Fremantle has put on 20.8 percent over the past twelve months. The current market is being fuelled from the bottom up. The top five performing local government areas in Australia are in Perth’s more affordable areas including Armadale, Gosnells, Rockingham and Kwinana. A two-bedroom duplex half recently listed in Rockingham is asking $449,000 sold three years ago for $260,000. The agent tells me she had offers site-unseen over $500,000 already. That’s a 33% gain over the past three consecutive years. These are worrying signs for our market. Perth has long been known as a ‘boom – bust’ market with strong gains normally tied to a specific event – a mining industry boom, for example - followed by a strangled demise afterwards. The boom years of 2004 to 2006 were testament to that when Perth put on 40.6 percent house price growth in 2005 only to be back where it started a year later. The question is, will this time be different? Whilst the pace of property value gains is following a similar pattern to previous booms, this time its is predicated on three major factors: Population growth, low supply and relative affordability and not a mining boom. Our quarterly change in population shows more than 20,000 arrivals, well above the long-term average. Core Logic’s analysis of monthly listing volumes shows inventories are at about half the decade average and, as already demonstrated, Perth remains more affordable than most of the nation’s capitals. These elements, underpinning Perth’s current market gains, will ebb and flow in the coming months. However, with supply levels still low and migration levels strong, the only thing likely to arrest this current trajectory in the short term is affordability and until our house values reach the early to mid- $800,000’s it seems unlikely affordability will impinge on potential future gains.