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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.

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.

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.

Apr 18, 2024

Rental Reforms Pass

Significant changes to residential tenancy laws passed through parliament this week heralding a strengthening of tenants rights as they relate to residential leases. The following key changes will impact residential tenancies: Tenants will be allowed to keep pets and the property owner will only be able to refuse in certain circumstances. Tenants will be able to make minor modifications to the property without permission from the owner. Tenants may take an owner to court if they can demonstrate the owner has acted with reciprocity against a tenant. Rent increases are limited to once annually. The process of bond disposals can be commenced by either tenant or landlord. Disputes will mostly be heard by the Commissioner of Consumer Protection rather than the Magistrate’s Court. Rent bidding will be banned. Overall, the changes are moderate and align with tenancies laws in other states and territories. Importantly, the changes stop short of prohibiting ‘without grounds terminations’, a silly phrase used to describe circumstances where a tenant requests a further lease term after the end of a fixed term and the landlord refuses without giving a reason. REIWA conducted a survey into this particular element of the tenancy laws with an astonishing 61 percent of the 6,000-odd landlords surveyed saying they’d ‘consider selling’ the property if ‘without grounds terminations’ were prohibited. Given a fixed term lease has a clear end date, neither party should anticipate that an additional lease or reversion to a ‘periodic lease’ is assured. You don’t have to give a reason to end a fixed term agreement in any other circumstance, even a marriage! At a time where supply of rental homes are at crisis point across Australia, new laws that actively undermine the encouragement of supply risks further disincentivizing the main cohort of property investors; unsophisticated, family investors the majority of whom own one additional property other than their home. Given family investors provide 9 in every 10 rentals in WA, we cannot afford to discourage them.

Apr 11, 2024

Rental Market Tightens Further

This week, REIWA reported Perth’s residential rental vacancy rate dropped to a record low of 0.4 percent in March. A balanced market records vacancy rates at around 3.5 percent and in sharp contrast to early 2018 where vacancy rates were at 7.3 percent and over 12,000 properties were advertised for lease on reiwa.com. Today there are 1,963 advertised. Median Perth rents are at $649 per week with properties offered for lease below this figure in higher demand than those above the median. Accordingly, properties advertised at less than $1000 per week are leasing in about two weeks, whereas those at above this figure take about 21 days to rent. Core Logic shows Perth’s rental value is up 14 percent in the twelve months to March 2024, leading the nation amongst capital cities which averaged a 9.6 percent increase. Applied to Perth’s current median rent, a further 14 percent would see Perth rents hit $740 per week this time next year. The core of the problem is the shortage of housing supply at a time when migration levels into WA are rising contemporaneously with deteriorating construction approvals for new homes. Apartment approvals are at decade low levels falling to around 375-unit approvals last month against our 10-year average of about 725 units. Thankfully, investors are relatively active with 36 percent of mortgage demand in Western Australia coming from investors. This is up from the decade average of 24 percent and just 15 percent in 2019. The upside to this renewed investor enthusiasm is more rental stock coming into the market adding to supply, with the downside for first home buyers being investors buying stock that might otherwise have gone to them, which ultimately push up house prices. And prices are rising most in typical first home buyer regions. Remarkably, 8 of the top 10 local government regions across Australia for annual price growth are in Perth with the affordable regions of Armadale, Gosnells, Rockingham and Kwinana the top four performers up between 25.8 percent and 28.6 percent. Serpentine – Jarrahdale, Wanneroo, Cockburn and Mandurah all made the top ten up around 23 percent. In a balanced market, as house prices moderately rise, rents typically ease as first home buyers leave the rental market and enter home ownership. The opposite applies when interest rates rise and home prices abate, demand for rentals rise, pushing up rents. Today’s market is different. Perth is experiencing a renaissance of sorts after a prolonged period of negative or negligible growth from 2009 to 2019. During this decade, under-investment locally has caught us off guard with the speed of market recovery leaving us hopelessly short on supply during a time where construction costs remain a deterrent against meaningful and rapid increases in housing stock.

Apr 4, 2024

Perth Property Takes Lead

It doesn’t seem that long ago when Perth’s property values made us the cheapest major capital in the nation. At the time, it failed to make any sense that Hobart and Adelaide’s median house prices were significantly higher than ours given our low unemployment, high wages, lifestyle and economic strength. Two years ago, Perth’s median home value for the March quarter was reported by Core Logic as $525,800. The current median house value for Perth as reported this week sits at $703,502. In March 2022, we were the most affordable place in Australia to buy real estate with all the evidence pointing to Perth being on the brink of a property boom. Back then, buyers dabbling in the Hobart property market parted with $820,000 during the quarter, in our nation’s capital they paid $982,000 and in Brisbane $760,000. In Darwin, the median house price reached $583,000 and Adelaide put on a tremendous 7.1 percent spurt from the previous quarter to reach a median of $649,000. Melbournian buyers paid a median of $1,121,500 for a detached house and Sydney topped the list with an extraordinary median of $1,590,900 for the quarter. Perth’s median house price growth for the twelve months to March 2022 was 4.1 percent. Compared to the same twelve-month gains had in Hobart (31.5 percent), Brisbane (26.7 percent) and Adelaide (24.8 percent), Perth’s property price gains back then were comparatively modest. Perth’s annual house price growth is now a nation-leading 19.8 percent and showing no signs of slowing. Brisbane sits in second place at 15.9 percent, Adelaide 13.3 percent and Sydney (somewhat remarkably given their high median price) has put on a further 9.6 percent. Remaining capitals are still growing but by less than 3.5 percent. Usefully, Core Logic’s statistically references ‘series peaks’ demonstrating current market sentiment within the context of a ‘since -COVID’ cycle. Brisbane, Adelaide and Perth are the last remaining cities to be at peak since that time with Sydney, Melbourne and Hobart all having peaked in early 2022. It would appear Perth has some way to go with Adelaide’s median home value at $734,173, and Brisbane’s – the capital most typically value-aligned with Perth – at $817,564 with both still growing. I predict Melbourne will continue to constrict from its current $778,892 median value, Hobart’s anaemic growth at 0.3 percent could turn negative at the year progresses and Sydney’s growth pattern will stall. I punt Adelaide is close to peak growth and whilst remaining positive will only gain 5 to 8 percent over the next twelve months and Brisbane should continue its double-digit performance for the remainder of 2024. With Perth gaining 1.9 percent in March and 5.6 percent for the quarter, we could see gains of around 22 percent this year. Meanwhile, local rents are up 13.7 percent for houses and 15.9 percent for units. Housing affordability has deteriorated and will get worse before more supply arrives.

Mar 20, 2024

Selling to Buy

Supply of homes to buy remain well below the long-term average. REIWA reports 3,971 listings available broken down into 2,230 houses, 1,129 units and 612 vacant lots. This time last year there were 7,262 listings. Meanwhile, sales volumes last week were 1,036 metro-wide up from an average of 615 weekly transactions in 2019. The lack of supply and listing choice is exacerbated by would-be sellers’ lack of confidence in coming to market, fearful of not being able to find a property that meets their needs once they’ve sold. And, given the high levels of demand, offering to buy ‘subject to sale’ of their own property is often trumped by buyers without such buying terms. Normally, sellers would rely on moving to a rental property for a short period in the event they’ve sold and yet to find an alternate home. However, the rental market is tighter than the sales market with median rents at $640 per week up from $360 per week in 2019. A mere 1,817 properties are for lease on reiwa.com and vacancy rates are at less than one percent. So, how do sellers overcome this dilemma? Firstly, be ready to come to market at short notice. Once you’ve chosen your preferred agent, present your home and arrange for professional photography. That way, your agent will be ready to go to market within a day or two should you successfully buy. Secondly, if you decide to sell and need to buy, structure the sale contract to give you sufficient time to buy an alternate home by negotiating a longer settlement period. Thirdly, consider a negotiating a ‘rent-back’ period with your buyer. This may not suit the buyer of course, but if an investor ends up buying your property, then this option comes into play. At settlement, sellers can remain in their home, pay rent to the buyer and have the luxury of only needing to move once upon finding their next home. Fourthly, introduce yourself to as may agents as possible when searching for your next home, give them your contact details and let them know what you’re looking for. This gives you more chance of securing a home ‘off-market’ whereby more flexible terms around settlement and the like are common. Finally, have confidence you’ll find a suitable home after you’ve sold. Sure, you’re not likely to be spoilt for choice and you may need to compete to buy, but there’s sufficient stock coming through the market to meet most family’s needs.

Mar 14, 2024

More Growth to Come

Perth’s housing values have increased more than 50 percent since the end of 2019 firmly putting an end to speculation that our run of price gains was purely due to the low interest rate, stimuli-fuelled COVID period. Core Logic reports Perth’s current median home value to be $687,004 up 52.9 percent since the bottom-of-the-market March 2020 price of $449,325. Current values eclipse the previous 2014 peak of $518,540. We’ve been witness to similar markets in the past. For example, back in 2006, Perth’s median house value rose a whopping 40.6 percent in twelve months thanks to the mining boom. Prices retreated relatively quickly after mining-related construction jobs ended and workers returned to whence they’d come. Back then, WA’s population gains went from +1,000 persons per week to -150 per week in a short period, hence the fairly spectacular downward adjustment in house values; demand simply fell away. There is a fundamental difference in Perth’s housing landscape this time around with population gains, low housing supply and relative affordability the three fundamental drivers of our market. These three factors are set to underpin positive house price growth for at least this year and into next with no predictable market shock on the horizon to bring this upward trajectory to a premature end. Considering each fundamental in turn, Perth’s house prices could gain a further 15 to 18 percent this year based on current trajectories. WA’s changes to population growth are at peak levels with around 22,000 new arrivals quarterly. Overseas migration is out-pacing interstate migration growth and with a housing shortage, the demand for more homes inevitably pushes up house prices. Meanwhile, REIWA continues to report low listing numbers currently at about 3,250, well below long term averages. The supply pipeline looks bleak too with current annual dwelling approvals 24 percent below the 10-year average for houses and an astonishing 74 percent below for units. Clearly, we are not going to be building enough homes for to cater for our population gains anytime soon. In fact, WA is leading the nation in terms of time taken to build new homes. Yet Perth remains one of the most affordable places in the nation to buy property with a year-to-date median house price of $718,500, well behind Sydney’s $1,395,804, Melbourne’s $942,671 and Brisbane’s $899,474. We have nudged past Hobart’s $696,508 in recent months. And the percentage of average household income to service current average mortgages in Perth is 29.8 percent, way more affordable than Sydney’s 58.1 percent. Interest rates are predicted to fall later this year as the broader economy slows. It’s foreseeable that such a move will add further fuel to Perth’s already hot property market.