Ironically, Perth’s housing bubble is getting larger

By Leith van Onselen

LF Economics has released a new report, entitled “An Illustrated Guide to the Latest Trends in the Perth Housing Market”,  which reveals a sinking market, yet ironically the ‘bubble’ is getting larger because rents are falling faster than prices.

Below are some key extracts:

The Perth housing market looks to have entered the early stages of a long-term price downturn. Considerable evidence suggests Perth residential land prices were confidently bid up on the belief the mining investment boom would last well into the next decade. Strong population growth was forecast to continue in one of the few capital cities with a housing shortage.

In this report, LF Economics examines the long-term trends in the Perth housing market and state economy. Of particular interest is the continuing shift in power between young and aspiring first home buyers (FHBs) and the losses confronting more recent property investors who are losing wealth and income by the day…

WA’s housing market presents an intriguing case study of supply and demand given the volatile imbalances caused by the mining investment boom…

As the mining investment boom ended, this dynamic quickly reversed and rents have plummeted accordingly. It is remarkable that a small construction boom lifted off (probably stimulated by housing price growth in 2013) while population growth collapsed. Large dwelling surpluses will continue into the near future, and will likely increase as population growth continues to decline…

Gross yields have been compressing over the last couple of years, but not for the usual reason of prices rising faster than rents. Perth is producing the opposite: rents are falling faster than prices. This means the property market is unattractive to both speculative and value investors…

The report, which is 13 pages long and contains 22 charts, is available for download here.

MB’s recent Perth housing report is also available to members here.

Unconventional Economist


  1. Don’t sweat the small stuff. If we carry out our patriotic obligations and keep borrowing to the eyeballs we can keep the RBA at bay. We’ll all be rich to boot.

    “Our heavily indebted families are now the Reserve Bank’s problem, and that’s why – although interest rates will rise in the next few years – they won’t rise by all that much,” the report said.

    “Although we see rates rising, you shouldn’t expect a sprint. We’re sitting on a housing powder keg.”

    • Moral Hazard at its best…. Investors will love it if the RBA thinks this as investors will keep on piling on debt due to the RBA’s reluctance to increase interest rates.

      • Mining BoganMEMBER

        A good reason right there why the story was written the way it was. Gets the secret message to the specufestors without using that encryption mumbo-jumbo that St Mal wants banned…except for when transferring money to the Caymans…


        It’s mission accomplished from a ‘lender’ perspective. A whole generation of borrowers who have been led to believe carrying around staggering levels of debt is the ‘new normal’.

        It’s the ‘done’ thing in Straya and we’re well past the point of even ‘discussing’ the perils that lie beneath the surface.

        Note: Canada just raised their rates ( to 0.75) after 7 years of filling the debt pool and already, the worries about those on ‘variable’ rates are rising fast.

        “Blissful financial ignorance meets economic incentives to keep borrowing ( looking at you RBA) meets complex psychological ‘attitudes’ towards carrying debt.”

      • Interesting article about debt psychology, SoMPLSBoy – in short, corrupted by the Moron Side

        I am often bemused by the common notion of “houses are safe and shares are risky”. It is nonsense, of course, and I have wondered why so many people buy into this nonsense. Now I think it is because many people simply do not understand the psychology of debt.

  2. scottb1978MEMBER

    Can someone please explain simply what drives the rents down when house prices fall. This is my understanding:

    – Renters purchase and become owners
    – A net loss in migration as people leave to find opportunities elsewhere

    I’m curious to know if this would also be the case down the east coast of Aus if there was a downturn over here.

    • I also think locals have to take pay cuts, so they either move to a cheaper place (given extra capacity in the market) because other landlords get desperate to fill so discount. Or they negotiate a lower rent to stay where they are and the current landlord agrees because they would rather take a small hit than have an empty place for a month or 2 (greater loss).

      The fact that many in WA have migrated to the East Coast in search of work, leaving their homes empty or for rent.

      In Ireland when the bubble burst, lots of migrants disappeared and rents fell by about 10-15%. Instead of waiting with 20 other people to view some shit house apartment in the cold only to watch the first couple enter and say they’ll take it. Now suddenly you could view whatever you wanted and the agent would have to chase you up to see if you’re willing to rent the place.

      I would also say in a downturn Landlords are very unlikely to try and increase rents, where as in a booming market with a tight vacancy rate they will always try putting rents up.

      Also many who have invested in the market will be desperate not to sell and hang out and put their properties on the market for rent.

      I still don’t know what’s keeping Perth prices as high as they are. I think in part it’s because East Coast is so unaffordable it still looks cheap compared with other places. Once the bubble pops in the East the West will fall also I think..

    • As the mining boom continues to wane, WA will continue to experience an exodus of capital for housing. People simply dont have as much money as they used to.
      In nominal terms, WA’s average compensation per employee peaked in Sep-14 and is now over 7% weaker. That’s fairly consistent with the drag on rental growth (I think).

      Prices have also gone down, but by not as much, with gross yields being cut. This yield compression is consistent with the eastern states.

    • kiwikarynMEMBER

      People lose their jobs and move out. Combined with an over supply of newly built homes that are not selling (due to people losing jobs and moving out of State) this forces the rents down due to heavy competition in the rental market. Rents are more elastic than house prices -ie. landlords are more likely to drop the rent by 20% to keep a tenant than they are to drop the price by 20% if they put it on the market. Likewise, owner occupiers who need to sell up often choose to rent the property out rather than sell it for less than they think its worth so they add to the rental oversupply, putting more pressure on rents. Plus people are facing negative equity so they are delaying having to sell up as long as possible, so are more open to rent reductions than a forced sale. The surplus of houses on the market are not absorbed by renters, as many (also facing job insecurity) simply choose to increase their standard of living by upgrading their rental property (nicer house, better area, same rent) rather than buy a still expensive house. Eventually as rents fall for long enough, more and more houses are put up for sale, and soon house prices start to fall properly in order to clear the backlog. Unless there are not enough people living there to absorb all of them, then you end up with a Detroit problem.
      Seeing exactly the same thing happening in Christchurch NZ (rents dropping faster than house prices) so looking forward to when house prices really start to fall over.

      • Diogenes the CynicMEMBER

        Just heard of another family talking of selling their house and then renting. “We can have a much better lifestyle for less money per month.” Of course they have to sell their house first…

    • Rents can also rise if house prices fall:
      1. As prices fall, those who would have bought decide not to buy and wait for prices to fall further.
      2. Other home owners who have been forced to sell also become renters.
      3. Bank loans on housing get harder to get in a falling market.
      4. Many owners selling prefer to sell empty homes rather than one with a tennant.

      This leads to an increase in demand for rentals and a rise in rents.

      • re: Item 4.
        A rental property that is empty is great in a tight rental market where every open for inspection has a queue around the block. In a soft rental market, where falling prices imply supply exceeds demand, an empty rental property makes a potential buyer wonder if, or at least when, they’ll be able to rent it out, and how much will they need to cut rent before they do.

    • Kiwikaryn said (at 3:25pm below) “They are probably in the “I will rent it out rather than take a haircut on the price” stage”

      If that is the case, rents will fall as properties that were being held in anticipation of a capital gain without the inconvenience of tenants re-appear in the rental market. That is, if Kiwikaryn has diagnosed the stage of the cycle correctly, rental supply will be expanding.

      • We just negotiated our rent down from $480 to $460, it’s not much but it takes the rent under the 24k levy charge on investment properties imposed by the state govt.

    • As demand for accommodation falls vs supply, so does rent. Supply & demand.

      Listed house prices don’t fall as rapidly because selling agents are tricky buggers. They don’t want to scare the horses, so they keep list prices steady while offering massive soft bonuses like furnishing costs or interest free debt for 12 months or gym membership or free petrol for 12 months and the like, just so they can say that the sales price was X, when it clearly is clearly Y after the giveaways.
      Rentals costs offer a less distorted and clearer view of what is going on in real costs.

    • Scott, in the area in which I was renting (6148) until 6 wks ago, the VR when I moved in was 0.9% (Jan 2013) and my rent was $410 pw moving to a peak of $450, and $405 prior to my leaving. The VR is now 5% and the place has relet for $350pw, a lower rent than the one prior to my moving in ($370). The place I’m in now is $380, down from $430.

      In this area simply the VR.

    • The Patrician

      +1 Cut teh rates! to lure thousands more young Western Australian FHBers into buying still grossly overpriced dwellings with grossly underpriced mortgage debt.

      • The Traveling Wilbur

        Good God man! You’re not happy for the younguns to buy property when it’s on the way up, or on the way down now apparently… jeez… tough man to please! Or do you just have an aversion to immigration into Perth?

        ; )

  3. And what happens at the point where Australia’s interest rate falls behind that of the developed world. Rates will rise regardless of what the RBA does. Armageddon!

  4. I spent the last week travelling around Perth. Local do talk about property being better than last year. Furthermore, I did not see too many “for sale” boards either. This is purely my observation. In stressed time, one will see many “for sale” signs.

      • Yes, Gavin I’d noticed that too. Just over the past 4 weeks lots more signs in my area of the inner west. On Saturdays signs on every corner pointing to opens for inspections and auctions etc.

    • kiwikarynMEMBER

      They are probably in the “I will rent it out rather than take a haircut on the price” stage.

    • China pressed the stimulus button 18 months ago and we are seeing the flow through now. Just wait until next year once the 19th CCP Congress is done.

      • Another round of even greater stimulus then or a just continuation of the ongoing crackdown that’s seeing them literally buy everything nailed down and otherwise across the globe? What a way to win a global war.

      • I’ve been waiting 17 years for a pull back. I guess another year for some random CCP event which may or may not mean something is fine.

    • Many owners in Perth can’t sell as they’re in negative equity. Plus there’s the mental barrier of selling for less than they paid, especially when they factor in the stamp duty lost. A lot of people can’t deal with losing.

      • Diogenes the CynicMEMBER

        I agree although so many in Perth support the Dockers they must get some practice! I am a Swans supporter so don’t peg me for a Weagle.

      • kiwikarynMEMBER

        I am now regularly seeing properties for sale in Christchurch for substantially lower prices than the vendors paid in 2014/15 (the peak of the property rental madness). Most of them are investment properties, owners who dont want to do the work to make the rental attractive in a competitive rental market, and a lot are owned by overseas owners. Owner occupier homes are the ones that have been sitting on the market for 6 months, refusing to lower their prices. I cant wait for spring when they all have to face competition from the next wave of sellers.

      • @kiwkaryn – can any lessons be taken from Christchurch? It has so many external factors. Ok just one- earthquakes. I’ve met a few NZers in Australia who have each said they left after a particularly bad earthquake a few years back. I’m certainly curious to know what the outcome there is. On the one hand we know earthquakes would reduce available stock due to damage, but on the other it must’ve scared off a few foreigners and a few locals.

    • Diogenes the CynicMEMBER

      Obviously that is an anecdote but re:data Perth – Greater region listings on for sale are just below 26,000. Late summer it was pushing 30,000 but a few have been sold, delisted or gone rental. Spring is the time when properties come to market – it exploded 3 years ago, jumped 2 years ago and moved up steadily 1 year ago all in spring. Rental market is still hovering around 13,000 and that has been the number for 12+ months now.

  5. My brother lives in Perth, he was involved in the mining sector and naturally invested in IP’s
    We discussed Perth RE last week and he was telling me how cheap it now was compared with Sydney (suggesting that it had to recover soon)whereas I told him how expensive it was relative to Hobart. He immediately told me how stupid I was for even suggesting that anyone compare Perth with Hobart, I guess RE beauty is absolutely in the eye of the beholder.

    Another aspect in the rent compression is the realization by IP owners that keeping the house vacant (for a quick sale) is no longer a good idea. All those unoccupied apartments suddenly come on to the market as owners settle in for the long haul and seek to fix the balance sheet / cashflow problem that falling RE purchase prices / valuations are causing them.

      • i lived in perth all my life. worked FIFO most of my adult life. just bought in hobart with cash. it’s all a bubble, but at least hobart is pretty, affordable, gets rain and has FTTP internet. perth is a shithole – now with traffic jams.

      • “perth is a shithole – now with traffic jams.”
        Lived here most of my life. Perth has always been a shithole in one form or another.
        And for some reason every piece of shit politician elected to federal parliament from here gets up high in the ranks but refuses to do anything to help this state. Its like they just step on us on their way to their goals and dont give a crap.

      • @ AngryMan. yep. where’d all that mining money go? Barretts mates. everytime i look at Lisa Scaffidi, i feel ill.

    • Diogenes the CynicMEMBER

      I had the same comeback when I was out with my daughter’s friend’s Dad. He asked me for my realistic take of Perth’s property market and when I gave my usual “it’s pretty weak and I don’t see any catalysts,” then he promptly debated all my points with a bull case for buying. Then it came out he has an OOP and 4 IPs in Perth market and it all made sense at least to him. I would be sweating big time with that lopsided portfolio.

      • Isn’t it amazing how religiously committed to the dream RE IP owners are.
        They quickly rationalize all completely insane movements on the upside yet conclude that all downside movements cannot possibly continue and proceed to reel of off a list of reasons why Perth RE can’t possibly sell for less than it already does.
        I’m a big believer that the price at which the market clears is always a function of the rate of change of demand, if this proves correct than Perth RE prices can’t stabilize until the WA economy stabilizes. It’ll be interesting to see what steps are taken to control (read reduce) the supply side of Perth’s greenfield housing….I’m certain that all the restrictions they introduce will be in the best interests of the public (the RE IP owning public that is)

      • You know that optical illusion of the spinning dancer?

        Like a lot of other such optical illusions, it’s REALLY hard to see the opposite case once the brain has locked on to one of the options.

        I figure that real-estate opinions are no different. Entertaining two perspectives at once is very hard. Switching to the other once one has been adopted for a while is even harder.

      • Dang Medio..took me a while to be able to switch between the 2 views. That is a tough illusion to flip.

  6. “This means the property market is unattractive to both speculative and value investors…”
    This is true, but i think that a very large number of buyers are those who attend property investment seminars and get led by the nose to purchase all the time being told how much tax they are saving and in the end its all about the tax NOT being paid that is important to them. I think a huge amount of buyers dont do any proper calculations they just follow the heard from their property investment group.

  7. Perth is on the verge of a mass-panic sell…. the verge collections at the moment are a dead giveaway…. all the Boomers and pensioners clearing out the back yards and garden sheds getting her ready for a spring sale…. its going to be a rush for the exits.

    Right now its probably the worst time in the past 15 years, and perhaps the next ten years to purchase a house or apartment in Perth…. your capital is best put into another asset class unless depreciation is what you are hoping for!!

    • Not yet. Commodity price recovery has saved the day, for a while at least.
      Wait until this time in 2018.

      • ‘not yet’ ? I mean, if you are saying that this time next year things will be uglier, then indeed now is the worst time to make a purchase…. I’m talking about capital depreciation…. buying a shitty duplex now for $800 K and realising in 1 or 2 years time that no one will even touch it for $600K when you lose your job and wish to follow the herd across the Nullabor.

        a serious collapse in values is on the cards and it (surely) can’t be too far off given the rapid decline in wages, rising unemployment/underemployment and plummeting rents here in WA.

      • Oh yeh the crash is just around the corner. Just wait until [enter event, new timeframe]….

    • If you averaged out price growth over the past 9 years, Perth prices have hardly even kept up with CPI. After a modest rise in 2012, prices have been falling. Thats hardly a bubble. And its not going to get better (for investors) any time soon.

      • C.M.BurnsMEMBER

        Perth starting prices 9 years ago were a bubble. So still bubble priced now. Just not as insane as east coast, which was also a bubble 9 years ago and has subsequently had a large cancerous bubble grow on top of the first bubble.

  8. My five cents’ worth:
    – Perth’s not a shithole, IMHO: clean, great weather (if a tad hot in summer), incredible beaches, and only about two million residents, making for relatively non-stressed public infrastructure, including road, rail, hospitals, schools, etc.
    – People are very much in the “can’t sell now, as I’ll take a loss” mindset, from what I can see. We have two friends with multiple IPs who are underwater in equity terms, but who are willing to cut rentals in order to retain tenants. Goes to the point about elasticity made by kiwikaryn (who nails a number of good points): until people actually lose their jobs and have to do a distressed sale, they will simply hang on for dear life and refuse to take a loss. A bubble takes a lot longer to roll over (if you’ll excuse the mixed metaphor) than you might think (or wish for).
    – The resources price blip of a few months ago has generated tons of “green shoots” comments; the worst is behind us, from here on prices can only go up, Perth is now so cheap that the next boom is just around the corner as East Coast specufestors come to understand the value on offer, yadda, yadda, yadda.
    – Money, though harder to come by, is still cheap, courtesy of our dear RBA.
    It’s a teetering pile of smelly stuff, but until we get some sizeable internal or external shock that leads to job losses and a changing investor mood on a large scale, don’t hold your breath for the sound of a crash: the most I anticipate will be the gentle hiss of air escaping, slowly but steadily …

    • I rarely make any observations on the housing market except that it’s stupid and destructive of our productive economy and society over the long run, but what you say sounds plausible. What I think *might* happen is a big shift down in the AUD but a more gentle slide, like you say, in the RE market, though Melbourne and maybe Sydney too, look vulnerable to a fair sized correction after the extraordinary surge of the last few years. But who knows? The powers that be seem prepared to sacrifice everything to prevent that, and along with the insane way the global financial system is behaving these days, who really has any idea of what is going on? I certainly don’t.

    • Aside from Japan (and they do things differently most of the time) when does that EVER happen?
      Everything is a ‘soft landing’ until the inevitable surprise external shock occurs. Its really more inevitable than surprise at this point no?

    • It takes a long time to turn around a giant ship like titanic. But once the new course is set, it is hard to change the course even if you spot a giant iceberg in its path.

    • Agree with most of your points. Perth is far from shithole! Good coffee, good looking people (mostly the landed gentry in the ilk of Reusa), Elizabeth Quay is great, new stadium, new hotels going up, plenty of cool small bars. All it really needs is more density in the city ala Melbourne. Great outdoor activity etc. In many ways Perth is a sleeping giant, but needs someone with vision to drag it into the future.

      Also agree with your comment re most ppl shelving plans to sell. They are all holding out for better conditions, though in reality it’s likely to be flat for a good while yet.

  9. About 2 weeks ago I reported that 3 houses went up for sale within 300m from where I rent. There are now 5. None is listed for auction. Might be just a coincidence but we might be seeing the first rush for the exits. This is south west Sydney. Middleton Grange to be more specific.

  10. Update from Sydney rental scene:

    Attended inspection for four properties in the $700-$750 range (3Bed, 2Bath, 2Car Townhouses, easy access to public transport, 40Mins to CBD). We were the only couple inspecting, agents sms’ed us repeatedly asking whether we will apply. We said yes but only applied for one on a Friday evening. Was expecting a decision by Monday or Tuesday this week but guess what, we were “approved” on a Sunday afternoon! So someone was working very hard over the weekend! Many other properties have reduced rents by 20$, many are sitting empty without tenants for over 3 months. The properties are in very very desirable areas,next to Mac Uni (Macquaire park, Marsfield,, etc).

    • Similar to my experience in Melbourne this time last year. My take is there is a point where you move off being a cheap rental – in my suburb no greater than $450/week (might be lower), but obviously varying according to location. At that point you need to work hard to fill a rental property. Pretty common in my suburb to see ‘For Lease’ signs stay up for weeks on houses that are obviously empty (they leave the curtains open so you can easily see the house contains zero furniture).
      At the same time, in the same suburb, rental properties that are obviously cheap still attract crowds to the open. But the cheap aspect definitely needs to be obvious or you get a very lacklustre response.

  11. – Ouch. Agree, this is NOT good news for the average “Specufestor” in Perth. Now that specufestor is seeing its cashflow shrinking.

  12. I have been to many cities in Australia and abroad and I can honestly say Perth is an excellent city, clean, safe, and uncrowded. I don’t mind getting on a plane and flying to Tokyo, Seoul, or Singapore for a big city fix and I certainly do not consider going to Melbourne or Sydney to satisfy this urge. When home in Perth, I consider myself lucky I can go to the beach and not have 1000’s of people fighting for a spot on the sand, I can actually go to the beach and have it to myself. So tell me, what on earth is bad about that?

    Also, when I am in Sydney or Melbourne the overcrowding and lack of room with black hair everywhere you look, much like I see in Japan or the cities I mentioned above become quite frustrating, why? Because I am now home and I would rather a slow, sleepy, clean modern city to live than to live in the hustle and bustle of some power couple wet dream.