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May 26, 2023
Perth Market Breaking Through
By Hayden Groves Perth’s property market has had its fair share of ebbs and flows over the years with market downturn the major feature of our market in the past decade. The years of 2014 to 2019 saw Perth property values drift back for more than 60 months, with house prices shedding 20 percent over that time. This came off the back of two sharper recent market declines in 2010-11 and 2008-9 where our market lost 10.3 percent and 12.1 percent respectively. Recent price rises off the back of record low interest rates during the peak-COVID years were challenged once rates began to rise and high inflation began to bite, had abated by a mere 0.9 percent and are once again on an upward trajectory. The price gains across Perth (up 1.6 percent in 12 months) have been concentrated to the more affordable regions, including Mandurah (up 8.7 percent in 12 months), Kwinana (8.4 percent), Rockingham (7.5 percent) and Armadale (5.9 percent) in the top four. At the other end of the scale, affluent Claremont is still recovering with a -3.8 percent price drop in 12 months. Fremantle is holding steady with prices back where they were a year ago. Buyer choice is diminishing. Compared to east coast markets, the combined capitals are off 7.4 percent over the past 12 months with Sydney down 9.2 percent, Melbourne 8 percent lower and Brisbane down 9. 5 percent. Adelaide is up 0.6 percent putting Perth at the top of the capital city list with 1.6 percent growth. So where to from here? The major contributor to Perth’s property surge is the lack of housing supply. Normally, when interest rates rise and inflationary pressures curb spending, property values pull back. This time, the underlying lack of supply and migration rising has trumped those macro economic factors that would see values fall. Demand is high whilst listing supply continues to drop. Total listing supply is a huge 40 percent below the decade average and continues to trend down. The measure of new listings coming to market is 22.9 percent below the volumes coming to market last year and active listings across WA are 39.5 percent under the five-year average. Meanwhile, sales volumes remain above average levels with about 1,000 sales completed each week. Buyer choice is diminishing. Market conditions point to continued improvement in the Perth market which remains the most affordable of the state capitals as median house prices here reach $599,240, still a long way adrift from Sydney’s $1,253,759. Rents continue to rise too with Perth’s vacancy rate the lowest in the nation at 0.6 percent for houses and 0.8 percent for units. Rents are now at a median value of $592 per week for houses, $516 per week for units. There are no definitive reasons to be found that suggests Perth’s property values will fall in the short term. Thanks to Core Logic for the excellent, comprehensive data set.
May 5, 2023
Rents Up, But Only Now
By Hayden Groves It is widely known that rental prices across Australia are rapidly rising with many tenants struggling to find affordable accommodation. Vacancy rates nationally are hovering around 1 percent and falling. In Perth, REIWA reports a vacancy rate of 0.7 percent where a balanced market would typically have vacancy rates as about 3.5 percent. There is no doubt, as confirmed by the federal Housing Minister, Julie Collins this week, that the root cause of rising rental costs is lack of supply. The Prime Minister, in an effort to get his $10b Housing Australia Future Fund through the Senate by placating the Greens, announced state and territory Housing Ministers will get together and discuss ‘renters’ rights’. rents in Perth have risen by $9 per week per year At national approach to residential tenancies is, in itself, not a bad idea but any move to introduce additional regulation that disincentivises supply of housing, would make the rental crisis worse. As previously mentioned in this column, private investors supply 27 percent of all rented homes in Australia. The government provides 3 percent and the rest is owner-occupied. Investors will only ‘buy and supply’ if there is enough incentive to do so. Remove that incentive and the government will have to supply the housing shortfall – an implausible task. The property owner takes on all the risks and costs of the property and anticipates a reward of capital gain down the track. In an effort to bring into balance the naturally superior rights of the property owner, tenancy laws here and across Australia are moderately tipped in favour of the tenant. But tip that advantage too far and investors sell out, leaving a supply shortage and rising rents. This is exactly what is unfolding right now in most cities across the nation. Locally, median house rents have risen 19.8 percent in a year – a substantial gain. However, policy makers that may be considering panicked policy responses that make matters worse, ought to reflect on the past decade. The reality is rents in Perth are only now catching up from a decade of flat or falling rents. In May 2013, median house rents were $460 per week. Nine years later, median house rents were $460 per week. That’s not a typo. Rents had drifted to $370 per week by May 2017 and stayed stagnant through to May 2020. If averaged across the past decade, rents in Perth have risen by $9 per week per year. Perth is becoming an attractive destination for property investors with median house prices at $560,000 and rents offering strong yields and solid returns. Tenants should welcome that, giving them the opportunity to find more affordable rental homes as supply begins to rise. Government could do their bit too by looking for incentives to encourage more investors into the market.
Apr 28, 2023
Greens to Push Rents Higher
By Hayden Groves Greens’ leader Adam Bandt’s impassioned address at the National Press Club earlier this week, demanded the government immediately impose a rent freeze across the nation. This is on top of equally impractical Greens policy such as imposing on developers a minimum 25 percent of all large apartment developments be set aside as affordable social housing. Last time I looked, it is the private investor market that supplies 89 percent of all rental homes in the nation. The government provides 11 percent. If seems obvious that if you disincentive private investors (with things like rent freezes), investors will stop providing enough houses for renters. This leads to shorter supply (investors will sell) which pushes rents even higher. This is exactly what is unfolding across the nation right now. Supply is the core of the issue; the rest is mere tinkering. you can’t magic more housing supply out of thin air Calling for an end to negative gearing and capital gains tax discounts (another Greens policy) would demolish the current rental housing system, causing a rental crisis far worse than currently experienced. The Greens say they want solutions to address the rental crisis ‘right now’. Well, you don’t and simply can’t solve it by turning on the very people that supply the houses; you can’t magic more housing supply out of thin air if all your policies are designed to whack investors. Unless, of course, the aim is to have no private investors at all, which would cost taxpayers a mere $3 trillion – the value of rental homes in Australia. The Greens have also called on more government-built housing, something desperately needed. Yet they refuse to back the $10b Housing Australia Future Fund which aims to deliver 30,000 more affordable homes, blocking it in the Senate. To get more supply in the market immediately, you could start with stamp duty reform. Imagine offering a stamp duty rebate for investors that offered property at a below-market rent that guaranteed a certain reasonable return with fixed moderate annual rent increases. Investors would buy and supply the market. Treasurer Jim Chalmers is on the record as a supporter of reforming stamp duty; that hideous, unfair tax that stifles economic growth and impacts affordability. Everyone from the Henry Tax Review through to the National Housing Finance and Investment Corporation (NHFIC) agree with what real estate agents have always known; that stamp duty is a significant barrier to property ownership and rental affordability and is an insidious, transaction-killing tax that should be reformed. Stamp duty reform doesn’t just help renters, it helps buyers too. NHFIC CEO, Nathan Dal Bon has advocated the benefits of a broad-based land tax as an alternate to stamp duty, stating that a typical household would be better off paying land tax on a median priced property than transfer duty. As an example, a household in NSW would have to pay a broad-based land tax for more than fourteen years to be worse off which is greater than the 12.4 year average holding period of a property. There is no avoiding that the only way to address rental affordability is by increasing supply and unhelpful policies that seek to diminish supply rather than incentivise it is counter-intuitive madness.
Apr 21, 2023
Investors Not to Blame
By Hayden Groves Governments have very successfully shifted the blame for today’s housing affordability challenges away from their own housing policy failures and instead pointed the finger at property investors and the real estate agents that represent them. Politicians have very effectively shifted the narrative away from supporting private property investment to supply homes to the market whilst simultaneously blaming investors for spiralling rents and house prices. This is a remarkable achievement. Like it or not, unsophisticated private investors – ordinary Australians – supply 27 percent of all homes in the nation to tenants. Government supply about 3 percent as social housing. Yet, in this time of greatest need, with supply of rental homes at severe lows, there is not a single new housing policy that seeks to encourage the investor cohort into supplying more homes. there is not a single new housing policy On the contrary; governments shun the idea of stamp duty reform, land taxes continue to rise and tenancy laws continue to swing in favour or tenants. Negative gearing and capital gains tax discounts are no longer sufficient incentives to encourage enough investors to buy. Appealing tax settings and returns in superannuation funds, commercial property and syndicated funds offer ‘mum and dad’ investors an alternative to direct residential property investment. Recent comments made by an industry leader in NSW that suggested property investors were selling their properties because, ‘they’re tired of being labelled “greedy landlords”’, was criticised, but is absolutely true. A Queensland ‘shock-jock’, locked horns with the REIQ’s CEO recently over unaffordable rents and tenancy laws in that state saying he ‘didn’t care’ how landlords felt. Adam Bandt, leader of the Greens, after his party called for a two-year rent freeze, is on the public record as saying, ‘they’re a landlord, they can afford it,’ when questioned about the impact of a rent freeze on investors carrying rising mortgage costs. Prior to 2014, the volume of investors buying residential homes to add to the rental pool, ran at a higher rate than those selling rented homes. Talk of changes to negative gearing tax laws from the then opposition, along with broader market factors, began to see this trend reverse. Nowadays, there are far more rental homes being sold than purchased. In Victoria, thanks to rising land taxes and changes to tenancy laws, for every three tenanted properties sold, only one remains in the rental market. In WA, there are now 18,000 fewer tenancy bonds being held today by the Bond Administrator than in 2019. When investors are inactive in the market, it falls to government to provide the housing; something they have failed to do. Put simply, governments – supported by the media – have been busily whacking investors, whilst simultaneously failing to provide enough rental housing for Australians as the only alternative to the private investor market. And, somehow, they’ve so far been able to get away with it.
Jan 30, 2023
<strong>Rental Market at Crisis Point</strong>
By Hayden Groves Thus far I have been loathe to label the residential rental market’s current low vacancy, short supply and rising rents as a ‘crisis’. My reasoning is that once labelled a crisis, what does one call it if things get worse? A catastrophe perhaps? Irrespective of choosing an appropriate descriptor, it was inevitable that conditions for tenants was not going to improve anytime soon, hence my reluctance to label our current market a crisis. Our leasing manager’s experience on the weekend may have changed my mind. A socially-considerate landlord wanted to rent his two bedroom Fremantle cottage ‘to someone really in need’ for $450 per week whereas the market would likely have paid around $600 per week. The result was 88 groups inspecting the property and 49 separate applications to rent it. That will mean 48 groups of people will be told their application was unsuccessful, many of whom will be all too familiar with that response. The REIA produced Real Estate Market Facts: A 20-year report late last year which demonstrated market rents had increased nationally 31.4 percent in 20 years. Perth’s rents have increased 62 percent since 2002 for houses and 88 percent for apartments. Local vacancy rates are now at 40 year lows sitting at 0.5 percent, a long way from a market balanced 3.5 percent. Local vacancy rates are now at 40 year lows What’s most remarkable about this current market is very few policy makers and influencers saw it coming. I recall in early 2018, a mere five years ago, vacancy rates in Perth were 7.3 percent and reiwa.com adverted 12,000 rentals. There are fewer than 2,000 listed today. A collision of COVID-inspired rental eviction and rent increase moratoriums, changes to residential tenancy laws, appealing superannuation top-up incentives, ageing population, building cost increases and delays, higher inflation, rising interest rates, rising land taxes and stamp duties, political posturing, landlord bashing and lacklustre investment in social housing has conspired to create a perfect rental storm crisis. There are simply not enough homes to rent. Daft policies such as proposing a ‘rent freeze’ along with media and political hyperventilation around ‘greedy landlords’ are making the problem worse. Landlords are leaving the market, selling to owner-occupiers. They don’t like the ‘greedy landlord’ label. The proof is there are 18,000 fewer rental bonds being held by WA’s Bond Administrator today than there was in early 2020. It is quite bizarre that investors, faced with achieving a peak market rent and almost zero vacancy would still be opting to sell rather than hold or buy. In time the market will work out that owning investment property is an invaluable part of a broad strategy in wealth creation. Investors will inevitably return to a buying mood at some point. My best guess is that will coincide with the inflation peak, stable property values and further rent rises, all of which ought to occur in the first half of this year.
Dec 5, 2022
<strong>Giving at Christmas</strong>
By Hayden Groves The National Hotel and St. Patrick’s Community Support Centre put on a fantastic Long Table Christmas Dinner last Saturday night and announced they’d raised around $750,000 since the event first launched to assist those without a place to call home. A shout-out to Karl and Janine Bullers for their inspiration. You see evidence of homelessness everywhere every day. I hear that Fremantle has a resident population of about 100 rough sleepers. Such is the confronting nature of homelessness that some of us opine that those in authority must ‘move them on’, put them elsewhere to make our lives less confronted. But this just locates the problem elsewhere. Family break-down, domestic and family violence, job-loss, addiction and untreated mental health issues all contribute to homelessness and most of us can’t imagine ever being amongst their number. It has been said we’re all a handful of catastrophic life events away from homelessness. It is not an incurable disease; it is rarely a choice and it can be overcome. incentivise these modest investors There are dozens of organisations whose sole purpose is to help transition the homeless back into secure, affordable housing. Local heroes like St Pat’s do extraordinarily good work in supporting Fremantle’s homeless. Yet St. Pat’s is constrained by funding, they never have enough beds to house the needy and, amongst many other organisations, can only do so much with their small army of volunteers. REIWA members, through the Community REInvest program provide financial help to the Salvation Army’s various homeless assistance measures. So far, REIWA agents have donated more than $1,000,000. Local agents, Caporn Young, White House and dethridgeGROVES support this program and I encourage other REIWA member agencies to join. Current government social housing systems mean eligible applicants can wait up to eight years to get into suitable housing. According to various sources, 60,000 households need social and affordable homes in WA, yet despite the overwhelming need for housing, 1 in 6 homes nationally remain underutilised. The state government has pledged to build 3300 more social homes within the next four year which should help but this is really only playing catch up. There are already 7000 fewer privately owned investment homes in market now than a year ago. For every government-supplied home, mum and dad investors supply ten. Part of the solution to finding affordable homes for those on struggle street is to incentivise these modest investors. How about removing stamp duty for those that commit to buying affordable rental properties or guaranteeing attractive rent returns in exchange for providing affordable rents. Perhaps early access to superannuation with guaranteed buy-back at pre-determined returns into the future. The great work of benevolent groups is laudable, but investors need more encouragement in solving homelessness.
Oct 31, 2022
Budget Blues
By Hayden Groves When Jim Chalmers delivered his first budget this week, he used the word “sensible” often. Keen to establish his credentials as a responsible manager of tax-payers’ money, the Treasurer delivered a budget that focused on Labor’s pre-election promises. Housing supply was also a major centerpiece of the budget. The ambitious target of building one million more affordable homes over five years from 2024 through a new National Accord is particularly ambitious. The real estate sector has long called for a plan to increase housing supply in a real way with proper targets that holds State and Territories accountable and deals with the key barriers in land release, planning and that is pro-investment for the private property markets.If done right, this approach can give Australia’s housing stock the generational injection it so badly needs in the same way policy programs in the 1970s did. The task will not be easy. Obviously, the devil will be in the detail and much more information will be needed especially in relation to the intent to provide opportunities to superannuation funds and build-to-rent developers ahead of Australia’s mum-and-dad investors. Industry will be looking out for any attempted inequities in this space. The Australian real estate industry manages a combined property management portfolio worth $3 trillion and manages $78 billion in rents each year on behalf of family investors and it would be fool hardy to mess with this essential cohort of housing providers. The budget has missed the chance of dealing with the wicked problem of stamp duty by State and Federal Governments which has been entirely and disappointingly omitted within the National Accord. However, one million new affordable homes are a supply ambition to be applauded. The challenge has now been thrown down to get these homes built and Australians housed in a very short period. The task will not be easy. Since May, repayments on a $500,000 mortgage have increased by almost $700 each month and household saving is forecast to slump below pre-pandemic levels. Constraints on housing supply, including a backlog of new builds from supply chain pressures, all mean affordability pressures for home buyers and renters are unfortunately likely to continue in the near term. Whilst this Budget was appropriate for the current circumstances both internationally and domestically the 2023 Budget needs to address how to support delivery of housing supply across all markets in Australia. A serious conversation on tax reform with intent to implement needs to happen.
Oct 17, 2022
How High for Interest Rates
By Hayden Groves If you are lucky enough to be amongst the 31 percent of all Australian households to own their homes outright, you’ll be less impacted by the Reserve Bank’s recent rapid raising of interest rates. The banks and other lenders have quickly passed these rises on to borrowers, with most variable mortgages now in the high 4 percent range. The COVID-induced emergency interest rate settings which saw the official cash rate drop to 0.1 percent, was always going to be temporary so borrowers ought not be surprised to see their interest payments rise from such a low point. However, the rapid nature of the increases has caught many by surprise with mortgage repayments nationally rising by about $700 a month since rates began to move. Couple rate rises with above-target inflation and it is understandable that cost of living pressures currently dominate media headlines. The official cash rate is 2.6 percent with the Reserve Bank’s last raise of 25 basis points less than what was widely expected. The Reserve’s decision to slow the pace of rate rises is a nod to a nominal slowing in inflation with the headline rate to August dipping a modest 0.2 percent from the period to July. With rising fuel costs back in the market since the ending of temporary excise relief, it would not be unexpected to see inflation remain stubbornly high for some time. Retail spending and our penchant for dining out in cafes and restaurants remains well above pre-pandemic levels, giving the central bank more excuses to keep ramping up the cash rate. Senior economists reckon the cash rate will reach close to 4 percent, which translates to an average variable mortgage rate of about 6 percent, before they start to ease up. property prices are holding despite the recent rate hikes This could spell trouble for many of the 3.3 million households paying down a mortgage, especially those who took out those loans a couple of years ago when getting a fixed rate around 2 percent was not uncommon. A rude shock awaits when repayments are re-calculated at rates three-times higher once these low fixed term loans end. Thankfully, property owners have had the benefit of rising home values providing an equity buffer across most markets. Recent declines in property values in NSW of near 8 percent is significant but proportionally small when compared to the 30 percent value gains experienced in 2021. For Perth, property values have risen more modestly and, as a result, property prices are holding despite the recent rate hikes. Unless you bought very recently in a declining market, your equity position remains positive. Inflation remains stubbornly high and it appears most Australians are yet to tighten their budgetary belts sufficiently to convince the Reserve Bank they ought to ease off their current tightening of monetary policy. Hopefully, when checking the financial dials closely in November, the Reserve Bank will acknowledge that rate rises implemented months ago are only just hitting household budgets now and will manage future rate rises accordingly. Young first home buyers paying 5 percent variable mortgage rates, ought not complain to their grandparents who’ll happily remind them of the early 1990’s when rates were 19 percent.