Keeping Rents Affordable

The phrase “rental crisis” has been bandied about in recent times with Perth’s vacancy rate at 40-year lows at about one percent. Rents continue to rise due to a housing shortage with only 2,684 properties advertised for rent on reiwa.com, about 1,000 fewer than this time last year. In contrast, there were 12,000 rentals advertised in early 2018.

Median rent for a house is now $450 per week, an apartment at $400 per week, up 30 and 20 percent respectively in a year. Winter and lack of supply has slowed tenancy movements with fewer properties leased last week than the same period last year.

Predictably, terminations of tenancies due to non-payment of rent has increased after the end of the Emergency Moratorium in March and with rents continuing to increase and supply of rental stock diminished, pressure is mounting on affordable housing providers.  

There have been calls from industry and tenancy advocates for the government to intervene but not much can be done until more housing stock and private investors begin to supply the market. The loudest voices in the discussion are coming from the social housing sector with demands for more government-supplied housing and funding. However, social housing is a mere 3 percent of all housing supply. 37 percent of all housing is privately owned rentals. Yet, government policy directions are all heading away from supporting property owners with taxation settings and tenancy laws disincentivising property investors.

Encouraging investors to return to the Perth market should be a priority of the state government given the lack of investor activity over the past five years. Without property investors, the taxpayer will need to supply the housing at unsustainable expense.

It is well known that Perth’s property market had been stagnant for at least a decade with no net growth in property values for ten years. That is rapidly changing with sales levels now escalating and prices rising yet investors remain cautious and are yet to return in significant numbers. Based upon investor finance figures as a proportion of all new home loans, investors represent about 18 percent of the buyer pool, well below the 30 percent needed to keep supply of rental stock at reasonable levels.

Perth remains the most affordable capital city in Australia to both buy and rent. On average, West Australians cough up 18.7 percent of their income to pay the rent. In NSW (the most unaffordable place to live in Australia) 28.7 percent of tenants’ income goes on rent.

We have a great opportunity to maintain rental affordability by encouraging supply. Whacking investors with high stamp duty and messing with Tenancy laws that further favour tenants continues to turn would-be investors away from the residential housing market.

Victoria and now ACT have introduced tenancy laws that seriously erode the rights of property owners. Rents in these regions are already high and as investors sell out in favour of more appealing opportunities, rental affordability will decline and pressure on tenants will rise.