Perth rental queues normalising but soaring prices remain far from normal

The last time Perth’s rental vacancy rate was at a balanced 2.5 to 3.5 per cent range was in September 2019.

It’s taken five years, but at last there are signs that heat is coming out of the rental market.

Whether that will translate into Perth’s steaming hot property and land prices slowing is yet to be seen.

But rental heat is reducing to a steady simmer. The vacancy rate has inched upwards to 0.6 per cent, rent prices are in a period of stability and listings are slowly increasing.

Kirsty Pilcher, Head of Department – Property Management Perth, aussieproperty.com, said the frenzy for advertised properties was subsiding towards a more normalised level of demand.

“We are finding that we are not seeing as many people attending home opens.

“Until quite recently, when the market was crazy, if we advertised a family home around the $600 price point you could easily have 50 people attend, whereas we are now finding that the numbers are nowhere near that many, with maybe 10 to 15 people through.

“If the price point of a property is above average we may have only two or three people through, so this is a massive difference.”

Ms Pilcher added that properties being snapped up with just one home open now need three or four home opens, with fewer applications for each property.

“When networking in the industry this is a trend that we are all discussing now and there is a widespread feeling that things are slowing down.”

Investors, who are integral to supplying the rental market, could prove to be the decisive factor in determining when Perth would return to a balanced rental market.

Investor activity has been increasing over the past 12-18 months but Ms Pilcher said she still had a large volume of investors continuing to sell.

REIWA President, Joe White, said this month’s figures were a move in the right direction but vacancies were still filling quickly, particularly for properties in the more affordable price brackets.

“Demand has been self-moderating. We are seeing an increase in the size of tenant households, and people choosing to buy over renting or choosing to remain in, or return to, the family home to avoid the rental roundabout.

“The market also appears to have reached an affordability ceiling.

“Tenants cannot afford to keep up with rising rent prices; they are either renting with other people to share the cost burden or choosing to rent smaller, more affordable properties.

“The second change has been to supply, with new supply coming to the market.

“Investor activity has been increasing over the past 12-18 months and, as well as buying established properties, investors have also been purchasing house and land packages.

“These new builds are being completed and are starting to come to the market. This is slowly boosting new supply and there is more in the pipeline.

“In addition, some tenants have finally had their new homes completed and are moving out of their rental, which frees up some existing supply.

“We are still a long way from a balanced market, but the numbers are encouraging.”

The vacancy rate of 0.6 per cent is still markedly tighter than the national rate of 1.42 per cent. Perth rental yields are also the second highest among the nation’s capitals, equal with Hobart at 4.3 per cent and behind only Darwin’s 6.5 per cent.

Perth property market still cooking

New land prices in Perth are the highest since the 2007 economic boom and the city continues to lead the way for monthly home value increases.

Prices rose 2.0 per cent in July alone, a rate that if maintained would mirror the 24.7 per cent capital growth of the past 12 months.

These figures are threatening Perth’s mantle as one of the most affordable capital cities in Australia, with Adelaide and Melbourne median values only marginally higher but with the gap closing fast.

Mimicking the capital’s growth pattern, regional Western Australia (up 4.7 per cent) led the rolling regional quarterly price change index, according to CoreLogic data.

The latest data from the Urban Development Institute of Australia (UDIA WA) reveals the average price of a new block of land in the Perth Metro Area is now $305,177 and prices are on an upward trajectory. 

Like in 2007, when the economic boom was in full swing, the price hikes are attributable to a supply shortage of new land for housing across the Perth Metro Area, and the regions. 

While UDIA WA’s figures show that construction activity has lifted this quarter, the increased activity is not sustainable, according to Tanya Steinbeck, CEO, UDIA WA, spelling further price pressure. 

“We know that developers are struggling to keep up with demand, and they just don’t have the depth in their forward pipeline to keep construction up to the current levels, or indeed to increase construction levels further, which is what the market really needs,” Ms Steinbeck said. 

Urbis Director David Cresp confirmed that the forward pipeline indicates more pain to come for Perth’s new land market, as well as in the apartment sector, where there has been very little activity in recent years. 

“While 2024 will see the highest year of apartment completions that we have seen for some time, with 2,566 apartments forecast to be completed, the forward supply pipeline is at much lower levels,” Mr Cresp said. 

“In the first six months of 2024, only 661 apartments commenced construction in developments of 25 or more apartments.

“This compares to an average year between 2014 and 2022 where almost 2,000 apartments were commencing construction each year.

“The costs of construction are making apartment development a challenging prospect and only financially viable in the more premium areas of Perth,” Mr Cresp said. 

The number of homes for sale in Perth is more than 30 per cent below the average for this time of year.

Expectations of an imminent cooling of the wider Perth property market beyond rentals for now seem misplaced without the intervention of a seismic economic event.