Can Perth’s residential rental market recovery continue?
A shift in demand has led to a sharp decline in Perth’s residential rental vacancies over the last two and a half years, but how will the market respond to COVID-19.
Perth’s rental market took a battering, following the end of the mining boom and the consequent exodus of resource workers. Rental vacancy trended upwards for nearly five years and peaked at 7.3% by June 2017. For context, a vacancy of 3% is generally regarded as a balanced market. From mid-2017 onwards, rental vacancy nosedived, and by December 2019, the Greater Perth vacancy rate had more than halved to 2.4%, level with the national average.
Figure 1: Western Australia Population vs. Rental Vacancy
Source: ABS, REIA, JLL Research
This significant drop in rental vacancy occurred during a period when Western Australia’s (WA) annual population growth averaged just 0.9%. Overseas migration, a key driver in rental demand, has also remained subdued. The last time rental vacancies were this low, WA’s population growth was hovering at over 3.0% per annum - close to historical highs. So, what is behind this sharp decline in vacancy?
According to REIWA–WA’s real estate institute, in the two and a half years since vacancies peaked in June 2017, the average number of dwellings leased per quarter totals just over 13,500 dwellings. This figure sits 16% higher than the 10-year average of 11,700 dwellings. Comparatively, over the same 30-month period, the average number of sales per quarter totals just under 7,100 dwellings, a 17% drop from the long-term average of 8,500 dwellings.
As dwelling values in the Perth market struggle to regain some sustained positive momentum, buyers remain hesitant. In a static market, people still need somewhere to live, and residents are electing to rent rather than purchasing a new home - thus driving down Perth’s rental vacancies.
Through the turn of the decade, WA’s economy was improving. Perth’s residential market saw the first green shoots of positive price growth as buyers took advantage of historically low mortgage rates and the attractive government incentives on offer. As house prices gradually began to rise and buyer confidence improved, we expected some renters might be lured out of the rental market for fear of missing out.
Unfortunately, the post-COVID world looks a lot different. Perth’s property market was finally heating up, but a spike in unemployment and stalling population growth poured water on the emerging fire. While border closures crippled the short-term/Airbnb rental market, landlords flipped properties to secure income from longer-term tenants.
There was a brief period of uncertainty following the initial outbreak with restrictions, resulting in widespread job losses. Those hardest hit may have walked away from leases before assurance came in the form of JobKeeper payments and eviction moratoriums.
The rental market is likely to have stabilised for the time being. But what happens once the handouts stop, and the moratorium ends? As we emerge from the pandemic and the economy opens up, many will be able to get back to work. However, the recovery in Perth’s rental market will slow down if the borders remain closed for long and elevated unemployment persists.