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Perth house rents have fallen 8.4 per cent in the last year and units by 9.3 per cent according to SQM Research. High pay in the mining investment boom drew many skilled engineering professionals and trades to Perth. They are now going home, seen in the steep decrease in the rate of increase of population.
Source: REIWA
The REIWA is out spinning its wheels, observing the fall in Perth rents has prompted a rise in demand – at the new price.
Real estate agents say more affordable rental prices in Perth have sparked a sharp jump in properties being leased this year.
Figures from the Real Estate Institute of WA show one-bedroom leased properties increased by 50 per cent in the March quarter, compared with the previous 2015 December quarter.
Two and three bedroom properties were up 18 per cent.
The total volume of leased properties in Perth increased by 17 per cent, with four and five-bedroom property leasings declining.
“Affordability in Perth’s rental market has improved over the last 18 months, tenants who may have been living in shared accommodation are now finding that they can afford to move out on their own, which is why we’re seeing this shift to smaller households,” said REIWA president Hayden Groves.
Hmmm. I call that a lipsticked pig. Falling rents are a disaster for the rentier cohort.
Tenants leaving shared housing to live alone is a natural response to these price cuts. Sure, some tenants will spread out, but this will be far from a clean fit: vacancies are still rising, likely even accelerating.
The ‘affordability’ the REIWA champions is a real cut in incomes for their key constituency, rental property owners. Unavoidable expenses like maintenance and council rates – typically around half of gross rents – will have changed only marginally, so this comes straight off their cash flow and profits. The recent cut to interest rates mitigates this for the heavily geared, but not entirely.
The fall in rents ought to prompt a fall in market prices for all Perth dwellings as the imputed rents for owner-occupiers are equally affected. So a rent retreat will drive a property price reduction – actually a fall in land prices as building costs don’t change – proportionate to the fall in rents PLUS an uncertainty discount AND an adjustment for lower expectations of future rent rises
The sharp retreat in WA mining capital expenditure is far from complete, meaning the tumble in Gross State Product and Perth incomes is set to continue.
Given these settings, who in their right mind would buy real estate in Perth?
Don’t Look Down!
The demand for skilled construction related trades in the “new mine construction boom” put a lot of excess pressure on land development and house building costs in WA. That should now ease as well. In the boom you had the people who would otherwise have done the suburban work doing FIFO on big incomes and buying houses ( mortgages) with those incomes. So constructors became buyers. Post boom the balance corrects.