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.
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Jun 19, 2024
Get Your Price Right
Fremantle’s property market continues its positive trajectory with short supply and solid demand. This current imbalance is keeping up property values as buyers continue to compete for the limited homes available throughout the area. FOMO enthusiasm gives rise to some ‘unicorn’ selling outcomes too, with seller expectations sometimes rising faster than market sentiment. The short supply means agents are desperate for listing stock and, unfortunately, one response to this market is for agents to offer ‘happy prices’ to would-be sellers, the aim being to secure the listing and hope the market ‘catches up’ during their period of authority. friends, lovers and others have their own opinions Additionally, emotional attachment often leads homeowners to believe their property is worth more than a market consensus of a fair price. Opinion of market value for property is largely a subjective exercise; various agents will have differing views of market price, and friends, lovers and others have their own opinions that influence would-be sellers. Sellers who have committed to another property at a higher-than-hoped price will also be pressured to sell their own home for more than the market might bear. The result can be price expectations that exceed market reality. In truth, the value of a property is not determined until a buyer is found, negotiations finalised and the contract for sale completed. The combination of market information, comparative property sales analysis, demand and supply levels, buyer activity and property presentation provide an insight into what fair market price might eventuate for a property, but what does the anticipated or listing price have to do with the final market price? In short, plenty. Statistics show that sellers that over-price their property lose money in the end. Sellers that allow their property to languish on the market due to unrealistic price expectations (either derived from themselves or an over-zealous agent) end up fighting against the buyer sentiment of a “stale” listing; a property that has been on the market for above average periods of time. Such properties are often simply over-priced and buyers will discount them because they think “there must be something wrong with it if no one has bought it.” Sellers that discount listing prices to sell will almost always end up selling for less than if they had a realistic market price expectation from the beginning. Sellers are well advised to take in professional advice from a local REIWA agent and form a considered, unemotional opinion of value based on facts, evidence and reputable market data.
May 3, 2024
Rent Bidding
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.