Perth Property Market: Why Falling House Prices May Not Ease Rental Pressure

Falling house prices would normally be welcomed by people struggling with housing affordability. But for tenants, a cheaper property market does not necessarily mean lower rents or more homes to choose from.

The question is what happens to rental supply while prices are falling.

Ray White Group Chief Economist Nerida Conisbee has highlighted this risk. As reported by Elite Agent, combined capital city dwelling values fell 4.3 per cent over the September quarter, while rents remained 5.5 per cent higher than a year earlier.

These are national figures, rather than a measure of Perth’s performance. However, the relationship between investor demand, construction costs and housing availability is relevant to our local market.

A softer sales market can still leave tenants under pressure

A tenant looking for a home and a buyer looking for a property are competing in different markets. More properties advertised for sale may give buyers greater choice. It does little for tenants if those properties are unavailable to rent.

When a landlord sells, the identity of the purchaser matters. Another investor may retain the property as a rental. An owner-occupier generally will not.

There is an important qualification: a tenant who buys a home may also leave the rental market, reducing demand. Therefore, an investment property sale does not automatically worsen the rental shortage.

The broader question is whether rental demand falls as quickly as rental supply. If fewer homes are available to lease while tenant demand remains strong, rents can continue rising even as sale prices soften.

This is a risk I have previously discussed in my Perth Property Market Outlook.

Lower purchase prices do not mean lower building costs

Nerida also points to the growing gap between established property values and the cost of delivering new homes.

According to the Elite Agent report, new dwelling costs have risen by approximately 48 per cent since the end of 2019. Her concern is that weaker established prices, combined with expensive construction, could discourage projects from proceeding.

For a developer, the expected sale price must justify the land, building, finance and other project costs. If buyers can purchase an established home for less, a new development may become harder to price competitively. Unless costs also fall, some projects may be delayed or abandoned.

The effect on housing availability takes time to emerge. A project that does not proceed today means homes that will not become available in the years ahead.

What this means for Perth and the City of Belmont

My view is that we need to assess the sales and rental markets separately.

For owners in Belmont, Rivervale, Cloverdale, Kewdale, Redcliffe and Ascot, national headlines provide context. They do not establish what an individual property will sell for or the rent it will achieve. A suburb can contain family homes, villas, townhouses and apartments with very different buyer demand and holding costs. Local competition, property conditions and realistic pricing remain critical.

For landlords, higher advertised rents also need to be considered alongside vacancy periods, maintenance, insurance, strata levies and finance costs. Rental income is only one part of the ownership equation.

For sellers, a shortage of housing does not guarantee a strong result at any asking price. Buyers still need the borrowing capacity and confidence to purchase.

My view

Falling prices may improve purchasing opportunities for some households. Lasting relief for tenants also requires enough suitable rental accommodation.

The outcome will depend on investor participation, construction delivery, household demand and economic conditions. Nerida’s analysis highlights why a weaker sales market should not automatically be interpreted as an improving rental market.

For Perth, the practical question remains: are we adding enough homes, and are enough of them available to rent?

This article reflects my market commentary and opinion. It is not financial, taxation or legal advice.

About the author

Andrew Huggins is Principal of Ray White Urban Springs, with more than 20 years of real estate experience in the City of Belmont. He writes about Perth property, Western Australian housing markets, rental supply and property investment. For a local sales or rental appraisal in Belmont, Rivervale, Cloverdale, Kewdale, Redcliffe, Ascot, Carlisle, Lathlain or surrounding Perth suburbs, contact Andrew and the Ray White Urban Springs team.