Friday, 3rd of March 2023
It’s A Landlord’s Market: Perth’s Lowest Vacancy Rate In 42 Years
It’s an unprecedented time in the Western Australian property market. One flick through the news headlines and you’ll come across record figures and startling statistics of a tight rental market that is surging with demand, leaving both investors and tenants with raised eyebrows.
There is one particular statistic that stands out from the headlines – the WA rental market is experiencing a 42-year low in terms of its current vacancy rate.
So, what does this mean for current/prospective investment property owners in 2023? And how has this translated into a Landlord’s Market throughout the Perth suburbs?
We answer these questions, and more, in our summary below.
How Perth Has Become A Landlord’s Market
As of January 2023, WA’s vacancy rate was just 0.7% according to REIWA, translating to fewer than 2,000 properties available for rent throughout the state.
This is well short of what is expected in a balanced market, where the average vacancy rate should sit anywhere between 2.5% and 3.5%. It has been some time since Perth experienced a vacancy rate of this benchmark, going as far back as September 2019 when the market peaked at 2.5%.
The Perth rental market has thus shifted from a tenant’s market in June 2017 to now being firmly a landlord’s market due to the 42-year low vacancy rate placing upward pressure on rental prices throughout the Metropolitan area – welcomed news for savvy property investors.
Other news headlines at the moment include:
- As of December 2022 the number of rental listings available for lease has fallen to a 12-year low as reported in this REIWA article.
- Rents have reached historical highs, with the median weekly rent currently $520, up $70 since December 2021, with projections set to increase further throughout 2023.
- Rental properties are being leased at phenomenal speed, with REIWA reporting an average of 15 days to lease new listings, with some suburbs being as low as just 8 days.
- We’re also seeing extreme pressure on regional areas, which are experiencing vacancy rates around half of those in Perth – with Albany recording a 0.3% vacancy rate in December 2022.
Market Factors Behind The Surge In Demand
If we step out of the rental market to analyse the economic factors behind the scenes, we can begin to understand where this unprecedented level of demand is coming from.
Delays In The Building Industry
It has been well documented that builders have been struggling with a surge in demand, combined with a shortage in materials, leading to ongoing pressure throughout the property market.
Build times have doubled over the last two years, with some builds taking up to two years to deliver mainly due to global supply chain delays, material shortages and a tight labour market.
Population Growth Outstripping Rental Stock
To put it simply, the state’s population is currently growing at a rate faster than the current supply of housing stock in the market. Taking a look at the Australian Bureau of Statistics population figures, it can be seen that as of June 2010, Western Australia’s population sat at 2,290,845 people, and since has grown 22% to 2,785,312 as of June 2022.
Hesitancy Around Interest Rates
The Reserve Bank of Australia recently increased interest rates, which has caused some uncertainty with property owners and investors. From this we saw a surge in owners selling their properties during 2022, with the flow on effect still apparent in 2023, which has resulted in further strain on market supply.
Despite investors having questions around what the future holds and how best to manage their asset given projected future increases, REIWA President, Cath Hart, explained in a recent interview that Western Australia will be able to mitigate interest rate risk better than other Australian states.
“It is important that we’re judicious and careful about making sure that the investment environment (regulations and laws that cover investors looking to have a second property or having tenants) are really careful, because the last thing we need is more people selling their investment properties and exiting the market.” – Cath Hard (REIWA CEO)
The REIWA CEO also encouraged investors to play the long game and hold onto their investment, which is a sentiment we share here at Perth Property Management for a host of reasons.
We encourage you to read our previously published article which explains why the short-term benefit of selling an investment property may pose a risk to retirement funds – view the blog here.
Further Demand From Incoming Chinese students
We are now in one of our busiest rental periods of the year as university students head back to campus. Whilst the market typically expects an influx of demand from international students flowing into the state for Semester 1 studies, this year is going to be different.
At the end of January 2022, China announced it was no longer recognising overseas degrees obtained through online learning, with the Chinese Service Center for Scholarly Exchange (CSCSE) encouraging students to return to overseas campuses effective immediately.
As a result, a surge of 2,500 students have been forecasted to flock to Perth for Semester 1, adding further pressure to the market with further demand for rentals, particularly at the entry level price point.
Opportunities For Investors
The rental market presents a host of opportunities for Perth property investors to make the most of the current conditions.
- Increasing demand has led to upward pressure on rising rents, providing opportunity for increasing rental returns and profitability.
- Owners can afford to be selective with prospective tenants given the rising levels of unprecedented demand.
- Rent increases can be built into lease agreements to protect investors from inflationary pressures, giving landlords more flexibility with their valued asset.
- Vacancy periods continue to remain at all-time lows, resulting in improved cashflow for investment properties.
- As reported in this article, REIWA’s CEO Cath Hart explained how WA is crying out for investors who were willing to buy and lease property – all whilst ensuring the current tenancy laws are appropriately geared towards encouraging more investment activity.
In summary, it’s a great time to be an investor as there is no immediate relief in sight for tenants in terms of new housing stock and surging rental demand.
Whilst the federal budget has pledged an influx of affordable housing to be introduced into the market, given the lead times for these building projects and the ongoing challenges of the supply of materials, this leaves property investors in a strong position of opportunity during 2023.
As a word of warning, if you don’t have the right property management agency behind you to support your rental profitability and asset management, you may not be making the most of this fruitful market.
We invite you to contact us should you require guidance or support from an award-winning agency.
Leasing With The Best In The West
In the midst of the booming Perth rental market investors should conduct adequate planning and preparation in order to stay ahead of the curve.
Now is the perfect time to lean on the expertise of your current property management agency, and who better to assist you than Perth Property Management.
Our award-winning agency has been recognised as the leaders in the Western Australian property market. Not only is our Principal the current 2022 Residential Property Manager Of The Year, we have also been awarded a series of property management awards at both state and national levels.
If you have any questions about the market, or are interested in engaging our services, we welcome you to contact us today for a free rental appraisal.