As property analysts debate whether Perth’s housing downturn has reached its lowest point, one part of the market is staging a quiet recovery.

In just over 18 months, the rental vacancy rate in Perth has fallen from 7.3 per cent — its highest level on record — to 2.8 per cent, the lowest rate in almost six years.

That rapid contraction has been reflected in the crowds of potential tenants turning out to view properties, Real Estate Institute of Western Australia deputy president Lisa Joyce said.

“We are starting to see groups of people at home opens, multiple applications on rental properties, and this is a space we haven’t been in for some time,” she said.

“There’s certainly some shuffle in the local market, tenants moving to new properties, but on top of that we are seeing much more activity in that corporate, executive expat market, as well as the interstate market.”

As co-founder of real estate firm Joyce Property Investments, Ms Joyce recently hired a temporary administration assistant to process rental applications.

“For me, as a business owner, I’m looking at whether that’s a seasonal spike in January or whether this is a sustainable, renewed interest in rental properties,” she said.

“I think we’ll have 10-to-15-per-cent growth in rents by the end of the year and it’ll be interesting to see how that then translates into the sales market.”

Property analyst Gavin Hegney agreed, but said he believed rents may rise even further, by 15 to 30 per cent. “That will have a knock-on effect eventually to values, because people will start to say, ‘Well, if I have to pay that in rent, I may as well buy’,” he said.

“It’s got to break out somewhere. You can’t have rental stock dropping by over 27 per cent in the last year, as it has … and it not find its way into the purchasing market at some stage.

“That’s probably what we’ll see in 12 months’ time.”

Perth rental market the result of a ‘perfect storm’

The rapid change in market conditions has caught some prospective tenants by surprise.

Three days ago, Shane and Njeri moved to Perth from regional New South Wales with their 10-month-old daughter, Amani.

“A lot of my reading suggested it was still fairly flat [in the Perth market],” said Njeri, a doctor who relocated to take up a new job. “I’m quite surprised that this is what we’ve encountered.

“It’s certainly better than what we avoided, which would have been eastern Sydney. That was probably another option for work.”

Mr Hegney said the Perth rental market was the product of a “perfect storm” of financial and demographic factors.

“We’ve had investors selling properties and a tightening of finance as well, at the same time as we’ve seen an increase in tenant demand, and that’s caused the vacancy rate to drop like a stone,” he said.

Reduced access to finance had kept some tenants in the rental market for longer than usual, Mr Hegney said, while lower rents had prompted household sizes to shrink.

“We’re now seeing individuals being able to rent a property on their own, or two couples being able to move out and get their own property, and that effectively is increasing demand in the rental space, [rather than] population growth” Mr Hegney said.

Equilibrium returning to housing market: CoreLogic

While rental availability has tightened markedly, rental prices themselves are yet to follow suit.

Data from CoreLogic shows Perth rents have fallen by almost 22 per cent since their peak in May 2013, with the median rent — at $350 per week in the December quarter — close to its level of a decade ago.

CoreLogic head of research Tim Lawless said that would change as Perth’s population growth rate recovered.

“We’re still seeing quite a negative result from interstate migration, meaning there are more people leaving WA than are arriving, but overseas migration has definitely levelled out and shown a subtle improvement,” Mr Lawless said.

“I think that combination of an increase in demand without much increase in supply is probably what’s going to be driving Perth rents a little bit higher.”

Over the past two years, a surplus of new residential development — which peaked in December 2015 for houses, and in the first quarter of 2016 for units — has been slowly absorbed.

“I wouldn’t say that Perth’s housing market is now undersupplied, but we are seeing the marketplace moving back into some level of equilibrium between the level of demand versus how much supply has come onto the market,” Mr Lawless said.

Tightened bank lending dampens house price hopes

The recovery in the rental market has prompted some property observers to predict an increase in house prices, following a four-year decline.

However, Mr Lawless cautioned that risks remained in the outlook for Perth’s property market, following a false start to a recovery in 2017.

“Jobs growth started to weaken, unemployment started to rise once again and that seems to have resulted in a bit of delay in Perth’s housing market bottoming out,” he said.

“But I think if we do see an ongoing improvement in local economic conditions, [with] stronger commodity prices, I think that should help turn around migration figures even more and drive demand.

“Finance availability has thrown a bit of a dampening blanket across the entire market, not just in Sydney and Melbourne … it’s much harder to get credit these days than it used to be.

“I think towards the end of the year, we probably will start to see the Perth marketplace levelling out. I’d be really surprised if we saw any material rate of capital gain coming back into the market.”

Much depends on whether prospective buyers could secure mortgages in the current market, Mr Hegney said.

“People will move over into the purchasing market because … it’ll almost be cheaper to buy than rent, but that’s on the basis they can get the money,” he said.

“If they can’t get the money because the banks have tightened up lending, then we may well see rents move higher relative to values than we have seen in the past.”