Despite slowdown, Perth's rental market is strong

GUEST OBSERVATION

In 2012, the Perth rental market was performing strongly, with rapid increases in rental prices.

With vacancy rates hovering around 2% at the time, many renters were forced to fiercely compete for properties by offering rates well above asking price – even to secure less than ideal properties.

Those conditions led to a steep increase in Perth rental prices, with the median house rent reaching a record high in early 2013 of $480 per week.

Since then, rental market conditions have eased with the current vacancy rate at about 4.1% and the median house rent dropping back to $460 per week.

The increase in vacancy rates has occurred primarily for two reasons. Firstly, more renters are choosing to purchase their own homes as record low interest rates have made buying more attractive.

The move to buy, rather than rent, has also been supported by ongoing state government assistance with first home owner’s in WA eligible to receive up to $10,000 in grants.

Secondly, a slowdown in the state’s mining sector has led to some transient workers leaving Perth as mining companies complete large scale expansion projects.

With Perth’s long-term equilibrium for vacancy rates at about 3%, the current rate of 4.1% is slightly higher than a balanced market.

Despite the slowdown, the Perth property market remains solid with a steady yield of approximately 4 to 4.5%.

The long-term economic future for Perth is still strong and the housing market will continue to perform well in the long term for Perth, albeit with cyclical movements.

One of the main drivers supporting Perth property rentals will be population growth.

The state government’s growth outlook report, Directions 2031, estimates that Perth’s population will increase 35-40% by 2031, which will require 328,000 new dwellings to sufficiently house the population increase. Some private sector forecasters predict much higher population growth.

This will prove to underpin Perth’s property rental price growth in the long-term as well as future housing prices.

Damian Collins is the founder and managing director of Momentum Wealth, a Perth-based property consultancy that specialises in building the long-term wealth of its clients by assisting in the strategic selection, financing, acquisition, development and management of their investment properties.