By Garth Davis, investment property expert
There is no quick fix for Perth’s rental crisis. It has been upon us for 12 months and it is about to get a lot worse when the rental price moratorium ends on March 28.
And while there’s much discussion about a suggestion from the Urban Development Institute of Australia WA that the way to fix the rental crisis is to incentivise investors to buy up Perth’s stock of 1600 apartments, this will not fix the problem we have.
It’s true that investors are the answer to Perth’s rental crisis, renters should not fear the investor as a greedy money hungry person who will take advantage of the low supply and high demand in the rental market and hike their rental property prices.
After five years of Perth being in the property investment doldrums thanks to the sagging iron ore price and many renters moving to the east coast, it is now the best time to invest in property in Perth in 20 years.
To encourage investors to buy property in Perth is to add rental stock to the market. But the best way to do this is for the state government to remove stamp duty to investors for new build homes up to a value of $600,000 for the next 12 months. Here’s why this is the solution we need, not investment in apartments only.
Not all investors want to purchase an apartment. It depends on the individual investor, but WA based people still like the idea of owning that piece of land, as compared to an apartment.
Investors look at holding their properties for the long term – 15 to 20 years – and they need to make sure that they fundamentally purchase the property they want long term, and are not lured by incentives for the sake of incentives.
Strata fees and the involvement in strata management will be a disincentive for many investors.
Investors look for properties that will be attractive to tenants, and do tenants want to live in an apartment or are they looking to live in a villa or a home in the suburbs, near the schools and other amenities?
While incentive for investment in apartments may be part of the puzzle, but the key to solving the rental market crisis is going to be incentivising investors to undertake new builds in the Perth market. This will mean that it will take between 6 to 12 months for stock to hit the market, but removing stamp duty for new builds up to $600,000 will have multiple benefits.
Firstly, it will attract investors to the Perth market, which invariably means more rental stock will hit the market within the next 12 months. Stamp duty is approximately 3.5 per cent of the purchase price, or $23,000 on a $600,000 home. An $23,000 saving is a very attractive incentive for an investor.
The second major benefit of removing stamp duty will be a bolstered construction industry. At the end of March, the federal government’s Home Builders grant will end, which will mean the Perth construction industry’s pipeline of work will dry up. By removing stamp duty, the state government will bolster the job pipeline for the construction industry, keep people in their trade jobs and support the WA economy.
Investors aren’t greedy. They don’t want to take advantage of a market, they merely want the rental price of their property to reflect the market. 80 per cent of property investors are middle income earning Mum and Dad investors who are trying to secure their retirement with their investment property. Every time they buy, it will create a rental property for the Perth market, which is what we need in order to keep WA families safely housed.
As rental vacancy rates in Perth sit at 0.7 per cent and continue to drop, we have more than 70 prospective renters at home opens and people are driving prices up by outbidding each other and offering many months of rent in advance. When the moratorium on rental price increases is lifted at the end of March, this problem will get worse. Rental prices will go up, renters will be pushed out of their properties as a result, and more people will become homeless.
We cannot just flick the switch and add more stock to Perth’s rental market, but there are some levers the government could pull in order to incentivise investors to buy in Perth, which would lead to significant numbers of rental properties joining the market in 12 months’ time. And that’s the way to solve this problem.