The continued shortage of rental properties means further increases are guaranteed, peak body says
Perth’s vacancy rate remained precariously low in March, making further rent increases “a certainty,” according to the Real Estate Institute of Western Australia.
The vacancy rate in Perth was 0.7% last month, unchanged from February and January. REIWA CEO said the continued shortage of rental properties meant further rent hikes were guaranteed, with many tenants facing their first increases since interest rates began to rise last year.
“There has been a lot of talk about the ‘mortgage cliff’ and the financial shock about 800,000 Australians will feel as their fixed-rate loans return to variable this year following 10 interest rate rises, but there are also thousands of tenants on fixed-term leases facing a similar issue,” Hart said in a news release.
Perth’s monthly median rent has risen 17% since April 2022, according to data from reiwa.com. However, data from the Australian Bureau of Statistics shows a 44% hike in Western Australia’s average mortgage repayments over the same period.
“So tenants who may have signed 12-month agreements back in April, May or June last year, for example, are likely to see their rent payments increase, perhaps significantly, when their lease expires in the next few months as owners pass through some of the significant increases in their mortgage repayments for their investment property,” Hart said. “We have, however, been pleased to hear about investment property owners not passing on the full increase where their personal circumstances allow and making more moderate increases in order to retain good tenants.”
Hart said that REIWA property managers often counsel owners on the importance of retaining good tenants, warning that if rents increase sharply now, tenants may seek to end the lease when rents start to fall again – as they inevitably will.
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Many WA investment property owners have seen their mortgage costs spike significantly since April 2022 but have not been able to increase rent while their tenants were on fixed leases – which account for the majority of leases in the state, REIWA said.
“It is understandable that property owners will try to recoup, at least in part, some of their extra interest rate costs when leases are due for renewal,” Hart said. “This is not always possible in some market conditions, such as when there is a higher vacancy rate and tenants have more choice, but the current competition for rental properties amid WA’s housing shortage is driving rent price growth.”
No relief in sight
Hart said there was currently no relief on the horizon for the rental market.
“The Reserve Bank of Australia expects the imbalance between demand and supply in the housing market to result in inflation being quite high for a while,” she said. “Supply is a major issue for the WA rental market. We’ve now lost over 19,200 rentals across WA since January 2021, yet our population is estimated to have grown by more than 70,000 in that time. We’re waiting for building completions to provide some relief, and we are pleased to see the interest shown in our market by interstate investors – but we desperately need more people willing to buy a home for someone else to live in to help fill the supply gap.”
Building approvals decline
The decline in building approvals was another urgent supply issue, REIWA said.
“WA’s long-term average for new home building starts is about 22,000 new builds per year to meet housing needs, either for people looking for a new home or an investment,” Hart said. “While approvals soared following COVID building incentives, monthly approvals for private houses fell to 866 in January in seasonally adjusted terms, their lowest since mid-2012. There have only been five months lower than this since 1990. And while they rose in February, the increase was just 2.4%. People have been deterred by the significant delays and rising costs in building and the concern around interest rates, but with our growing population, this will just continue to put pressure on the established homes market for both sales and rentals.”
Rent increases regulated
With further rent rises unavoidable, Hart reminded owners and tenants that rent increases are regulated in Western Australia.
“The Residential Tenancies Act regulates when the rent can be increased, and it is not at the whim of property owners,” she said. “If tenants are in a periodic tenancy, rent increases can only occur every six months, and they must be given at least 60 days’ written notice stating the amount of the increase and when it will take effect. If they have a fixed-term agreement, the rent can only be increased during the term of the tenancy if the lease agreement specifies how much the increase will be or the method of calculating it, such as by a certain percentage. The property owner must give the tenant 60 days’ notice of the increase.”
If a fixed-term agreement allows for rent increases, they can only occur six months after the beginning of the tenancy or the date of the last increase, Hart said.
“Tenants can negotiate with the property owner if they feel an increase is unreasonably high,” she said. “They can also apply to the Magistrates Court to argue against the proposed increase if attempts to negotiate fail – but of course this is the last resort, and we encourage tenants and property owners to seek an amicable solution to any dispute.”
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