The relentless growth in rental costs in Perth and regional Western Australia over the past five years has been well documented.
The relentless growth in rental costs in Perth and regional Western Australia over the past five years has been well documented.
According to recent data from the Real Estate Institute of Western Australia, the median rent for a three-bedroom house in Perth reached $650 a week at the end of 2024.
That translates to a staggering $300 a week increase in rental costs over the past five years and $70 in the space of a single year.
Rental costs for residential units are only a fraction lower, at $620 a week for a two-bedroom apartment.
Rents have been rising at similar rates in regional centres as well, especially in Broome and Busselton, and in the mining towns of Port Hedland, Karratha and Kalgoorlie.
Federal reforms to Commonwealth Rent Assistance have provided some extra support, but nowhere near the scale of rental cost increases.
And we know that much of these increases have been supply-side driven. Rental vacancy rates for Perth have remained below 2 per cent pretty much since the onset of the pandemic.
It comes as a relief vacancy rates finally look set to breach the 2 per cent threshold as we move into 2025.
But we need to see vacancy rates of between 2.5 and 3.5 per cent to achieve a balanced rental market, with enough extra rental stock to satisfy WA’s excess housing demand.
And even when they do, rental costs won’t adjust immediately.
It takes somewhere between nine months and a year for rental costs to respond when vacancy rates hit the balanced rate.
The result is that we are unlikely to see rents moderate for much of 2025.
There is an urgent need for affordable housing options to provide security to financially stressed families, or for young people looking for their first rental.
Smaller apartments or multi-residential units are often thought of as a relatively affordable rental, or as a first step on to the housing ladder.
But a curious feature of the rental market – and the challenge for those seeking affordable housing options – is the relative rental costs for units compared with houses.
The median price of a three-bedroom house across Perth metropolitan area sits at $752,000.
This compares with $510,000 for a median two-bedroom apartment – around two-thirds of the benchmark house price.
And yet the typical rent for an apartment in Perth, at $620 a week, is only $30 (or around 5 per cent) below the median house rental.
It’s hard to escape the conclusion rental costs for residential units are substantially overpriced relative to their value.
One explanation could be that more apartments are closer to the city, and bring extra amenity to their residents, compared with houses in suburban areas of Perth.
But if anything, the comparison is even starker in suburbs like East Perth or South Perth that are closer to the centre.
It looks like rents for less expensive properties are being driven up disproportionately in a tight housing market.
It’s encouraging to see the state government committing a further $443 million to boost affordable rental housing.
The expansion of Keystart price and income limits is also to be welcomed.
But these measures will take time to feed through the market.
Recent rent reforms mandate that landlords can increase rents no more frequently than once every 12 months.
The measure has been pitched to balance incentives for property investors, with the necessary protections afforded to tenants.
But with advertised rents for units in Perth having risen by 38 per cent in the past two years alone, the time has come for some control or cap on annual rent increases.
Leaving it to the market to decide has put too many people into severe financial hardship and housing stress for too long.
• Professor Alan Duncan is Director of the Bankwest Curtin Economics Centre
