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The Real Estate Institute of Western Australia reported recently that housing affordability has improved over the last year and that median rents have climbed by 12%.

So, for many people renting a question they are asking themselves is: “would we be better off to buy?”
Current data shows that in Perth, the median purchase price for first-home buyers is around $420,000 while metropolitan rents are around $470 per week.
Not everyone is in a position to borrow and meet loan repayments, but for those singles and couples who can afford around $580 a week at current variable interest rates, a mortgage of $373,000 will buy a very suitable unit, villa or house with its own land.
(In this example I am assuming a deposit of $20,000 and eligibility for the $7,000 first-home owners grant, so the purchase price would be $400,000.
However, there are many cheaper properties throughout WA including the metropolitan area. Some house and land packages are accessible at $300,000 or less and fixed rates can be more affordable than variable rates).
In other words, by paying around $100 more each week on a mortgage as opposed to paying rent, many tenants could transition to home ownership if that suited them and banks approved the loan.
Naturally, the bigger the deposit the smaller the loan and it’s important to keep in mind that renters don’t pay council rates, annual utility charges, building insurance and maintenance which home owners do. Buyers need to factor in about $50 per week to cover this.
The real cost of renting is not the fortnightly payments, but the loss in savings compared to accumulating equity in a home.
There are also good financial reasons to support ownership, but two key factors illustrate its benefit.
First, home ownership can be a stepping stone to increased wealth and long term financial security. Property is highly regarded by financial institutions as security for borrowing to fund a property investment, a business venture or a holiday.
It’s more difficult to borrow against other assets.
Second, home ownership opens up lifestyle opportunities. With your own place you can design and mature the garden, paint and decorate as you wish, have pets (with some strata exceptions) and generally create a home with the liberty and security that can bring.
Households which experience financial difficulty in retirement years are more likely to be living in rental properties, so investing in a home can be a better way to secure your retirement circumstances.
The early decisions you make around real estate can affect your long term outlook, but it’s strongly advisable that you discuss your plans with competent financial advisers, banks and lenders before making a decision and then approaching an agent.
David Airey is president of the <a href="https://reiwa.com.au/home/default.aspx" rel="nofollow" target="_blank">Real Estate Institute of Western Australia.</a> This article was originally published on <a href="https://reiwa.com.au/Faq/Pages/Feature.aspx" rel="nofollow" target="_blank">reiwa.com</a>.
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Is it always better to buy than rent?

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The delay in changes to the first-home owners grant (FHOG) is good news for many buyers.
Legislative changes to the distribution of the FHOG were anticipated to take effect last Sunday, however, the Western Australian parliament has not yet passed the necessary bill.
The state government announced changes to the FHOG in the August budget and was aiming for 15 September as the change-over date, but parliament has not yet fully processed this legislation so the change now looks like happening in October.
This is good news for the 70% of first-home buyers who preferred to purchase existing, older homes rather than building new.
Currently first-home buyers are eligible for a grant of $7,000 whether they buy an established home or build a new one. However, once the FHOG change takes effect the grant will drop to $3,000 for established homes and lift to $10,000 for new-builds.
The current delay in the change means that first-home buyers looking for an established property have a few more weeks to access the higher grant and, conversely, those who want to buy a block and build will be likely tohold back until the grant lifts to $10,000.

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David Airey is president of the <a href="https://reiwa.com.au/home/default.aspx" target="_blank" rel="nofollow">Real Estate Institute of Western Australia.</a> This article was originally published on <a href="https://reiwa.com.au/Faq/Pages/Feature.aspx" rel="nofollow" target="_blank">reiwa.com</a>.
 
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Good news comes in the shape of delays to FHOG changes: David Airey

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The Real Estate Institute of Western Australia has urged the state government not to consider ending the universal application of the first-home owners' grant in its upcoming midyear budget review.
Currently, the state distributes the $7,000 grant to first-home buyers irrespective of whether they are purchasing an established property or building a new one.
Some premiers in the eastern states have changed the rules for eligibility and will now only provide funds to first-home buyers who build a home or purchase a newly built one.
The New South Wales and Queensland governments recently scrapped the first-home buyers' grant for people who buy a previously lived-in property as a means to stimulate their flagging construction industry.
However, that stimulus is not needed in WA, especially when 75% of first-home buyers in this state purchase a second-hand home, not a new one.
WA is presently experiencing the strongest non-stimulatory growth in first home buyer activity in both the established and new housing sectors since FHOG was introduced in July 2000.
Now is not the time to distort the healthy recovery in the WA housing market.
First home buyer activity  is currently very strong in WA, constituting up to 30 per cent of all turnover around the state.
We are also starting to see a healthy recovery in new building activity, which has partly been led by first-home buyers now representing 25% of this new activity.
Meddling with the application of the first-home owners' grant now would greatly distort this healthy sector of the market and disadvantage three-quarters of people trying to own their first homes.
The Commonwealth introduced this grant with the purpose of it having universal application to all first-home buyers. This universality must continue in WA to keep this section of the market stable and to ensure fairness for all new buyers.
REIWA is also encouraging the state government to maintain its transfer duty exemption for first home buyers in the forthcoming midyear budget review.
David Airey is president of the <a href="https://reiwa.com.au/home/default.aspx" target="_blank">Real Estate Institute of Western Australia.</a> This article was originally published on <a href="https://reiwa.com.au/Faq/Pages/Feature.aspx">reiwa.com</a>. 
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The WA government should leave the first-home owners' grant as it is: David Airey

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Recently there has been some national media commentary about an apparent slump in the number of first home buyers, with commentators saying this is due to unaffordable prices and competition from investors.
It’s important to note that this speculation is very east coast based and bears little resemblance to what’s happening here in Western Australia. Let’s look at the facts.
When the First Home Owners Grant (FHOG) was introduced in July 2000, this mechanism became a good way to record this demographic in the market. There were 1,430 FHOG applications across WA in July 2000 and the median purchase price for established homes among entry level buyers back then was $122,000.
Thirteen years later in June 2013, there were 1,840 first home buyers paying a median price of $430,000 on established property.
After more than a decade the numbers are steadily growing despite the accompanying price growth for dwellings.
For the last couple of years first home buyers have benefited from historically low interest rates, a stable and recovering housing market and the ongoing exemption from stamp duty for homes under $500,000. They are also eligible for a $3,000 grant when buying an existing property or $10,000 if building a new one.
This combination of factors has prompted very strong first home activity, particularly through 2013.
In recent years the number of first home buyers each month has been fairly steady at around 1,500 each month. For the past year however, it was trending up with monthly figures closer to 1,600 and 1,700 applicants. In October last year there were 1,969 applicants seeking to enter the first home buyer market and in December there were 1,573.
Around 20,000 first home buyers made their move last year. The Office of State Revenue reports that the median purchase price on established dwellings for first home buyers across the state is currently $438,000. That’s up by $28,000 on the same time last year and by $43,000 on 2012.   Of course the median is only the middle price which means that half of all first home buyers are purchasing under $438,000 and there is plenty of stock under $400,000, including house and land packages.
The percentage of first home buyers as a proportion of the overall housing market has been above average for some time and last year was at times almost 30% of the whole market.
There is little evidence that first home buyers in WA are being frustrated by competition from investors, as they are weak in the current market due to soft rents. While home affordability itself has rarely been better and this is reflected in the significant numbers of FHOG applicants and swift turnover with homes under $450,000.
David Airey is president of the <a rel="nofollow" target="_blank" href="https://reiwa.com.au/home/default.aspx">Real Estate Institute of Western Australia.</a>
<a rel="nofollow" target="_blank" href="https://reiwa.com.au/home/default.aspx"></a>This article was originally published on <a target="_blank" rel="nofollow" href="https://reiwa.com.au/Faq/Pages/Feature.aspx">reiwa.com</a>.
     
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WA is booming for first home buyers, unlike the east coast

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This article is a response to Terry Ryder's piece '<a href="/expert-insights/41414-caution-inhaling-real-estate-agent-s-words-may-be-dangerous-to-your-financial-health-terry-ryder" target="_blank">Caution - inhaling real estate agent's words may be dangerous to your financial health'</a>.
There is no conspiracy in REIWA market commentary. We pride ourselves in ‘telling it like it is’, contrary to the cynical perception that many members of the public often have towards agents.
The fact is the Western Australian property market is very cyclical (usually counter-cyclical to the east coast), and very closely linked to the fortunes of the mining and resources sector. That has taken a dive, with as many as 25,000 jobs having gone in the last year.
After solid market growth through 2005 – 2007, market correction and the global financial crisis in 2008, followed by full market recovery in 2009, the WA housing market has bumped along for the last five years with modest growth and patchy sub-markets. First home buyers have been very active.
However, we are now facing a year in which our population growth rate is slowing, consumer sentiment is weak, job losses continue, people are moving house less often and a significant number of new dwellings are coming to market or planned for next year.
There are some 24,000 homes under construction, of which 8,300 are multi-residential. While this level of output is not so unusual, it has not previously occurred at a time when population growth was slowing. There is increasing concern about how this oversupply will impact across all markets as it comes to fruition.
Listings for both sales and rentals have spiked and continue to climb. Days on market have stretched out to 63 and the number of vendors discounting has increased to 57% with the average discount climbing to almost 6%.
The message we are hearing loudly and clearly from our agents and property managers is that many sellers and owners have unrealistic expectations and seem to have a mind-set that views that market as unchanged from a few years ago. This is wrong.
REIWA believes it has an obligation to advise the public about changing market conditions if sellers and owners want to achieve the best asking price or rental return and in a realistic time frame.
This is not to suggest that people shouldn’t buy or invest in the Perth market; far from it. But engaging in the market requires good research, good timing, realistic expectations and a long-term outlook. And it must be said that some sub-markets and regional centres are doing much better than Perth overall.  
Current indicators point to a weaker market in 2015 across our metropolitan area for the reasons outlined above. Growth will be negligible. Sellers and landlords will find it a more challenging year and we don’t resile from speaking this truth.
It will be interesting to revisit this topic in the December quarter, and I invite Mr Terry Ryder to return to this column about REIWA and Perth later in the year. I am confident our commentary will be proved accurate and prescient. 
David Airey is president of <a href="https://reiwa.com.au/" target="_blank">REIWA</a>.
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There is no conspiracy in REIWA market commentary: David Airey

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If you’re familiar with the Perth property market, you’d be aware that the ‘spring selling season’ is considered the most active selling period of the year. 
However this isn’t entirely accurate.
While it’s true there is generally a surge of activity during spring, there is a misconception that September is the start of the boom period, when in fact data suggests sales don’t pick up until October.
Closer analysis of the spring selling season indicates that September is actually the Achilles heel of the notional spring selling period.
There has only been one occasion since 1994 – September 2008 – that we actually saw a lift, every other September in the past 20 years has actually seen sales fall.
Having one less selling day than July, August and October is one theory behind why there is traditionally a drop in September, another is the long weekend that tends to fall during the month, and a case could also be made that with September being the last month for many sporting codes, weekends are taken up with finals instead of home inspections.
The impact these factors have on overall activity cannot be officially measured, but it’s reasonable to suggest they influence activity.
When we really look at it, the spring selling season is confined to just October and November as we then experience a fall away in activity in December as we approach the festive season.
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Perth's spring selling myth

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In July, economists Ryan Fox and Peter Tulip delivered a paper for The Reserve Bank which looked at the broad question: is Australian housing overvalued?
It found that Perth residents who bought a property during the 2005-2007 boom would have to hold it for three decades before the investment worked out cheaper than renting for the same period.
The RBA research also revealed that the surge in prices over the past decade had made renting more economically sound than buying.
Value equation
Although the researchers found long-term that prices were generally “fair value”, they also looked at whether people were better off buying or renting and discovered that the boom of seven years ago had significantly changed the equation.
They took into account all the costs of buying and running a house, including interest rates and depreciation, and the expected increase in value home owners hoped to get on their property.
Between 1955 and 2014, owning a home was less expensive than renting within about eight years. But over the past decade when prices in Perth more than doubled, those who bought have gone backwards relative to those who decided to rent.
Research data
“If real appreciation over the previous 10 years is used as a guide, buying is less expensive than renting only with extremely long expected tenure – in excess of 30 years,” the researchers found.
“Consistent with conventional wisdom, households expecting to move again in a few years time are better off renting, unless they believe they can sell the property for an unusually large capital gain.”
House prices in Perth have climbed 120% since early 2004 and rents have climbed 81%.
Capital gains since the start of this year have slowed a little, with preliminary REIWA data showing the metropolitan median price in Perth down by one per cent in the June quarter and up by a modest 3.8%t on the same time last year.
Advantage
The main benefit with buying is the long-term capital growth that comes from owning a quality asset which is tax free, given the absence of capital gains tax on the family home.
Home ownership is also a huge advantage in retirement when most people have diminished earning capacity and survive on low and fixed incomes, such as the pension.
Australian research shows that pensioners who don’t own their home can spend up to 60% on their income on rent, pushing them into housing poverty.
So while only very long-term home ownership is the more affordable strategy, it provides the best outcome for people in their latter years.
Personal benefits
Another benefit of buying over renting was the ability to paint, decorate and renovate as you like, as well as shaping the garden.
There are some personal and psychological benefits to buying that go beyond money.
It’s also a lifestyle improvement for many people and can provide a sense of security that isn’t always possible in the rental system.
In spite of the recent report from the RBA, I don’t know many people who would strongly agree with the findings.
I think most tenants aspire to home ownership and I can’t see that changing much for the time-being.
While it’s true that long-term renting is far more common through Europe and the US, I think social, cultural and economic conditions are different enough in Australia to still nurture the strong desire for home ownership among those who can secure a mortgage.
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The benefits of home ownership extend far beyond capital growth

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About one out of every four households in Western Australia is a rental property, representing approximately 200,000 dwellings.
The proportion of renters has been reasonably steady at around 28% of all households for over a decade, although there is a change occurring in the mix of private and public housing tenants with the proportion of private sector tenants growing.
Most rental properties are located in the inner suburbs. For example, over 75% of all metropolitan rental properties are located within a 15 kilometre radius of the CBD.
Suburbs with the highest concentration include <a href="https://www.urban.com.au/property-observer" target="_blank">East Perth</a>, <a href="https://www.urban.com.au/property-observer">Karawara</a>, <a href="https://www.urban.com.au/property-observer" target="_blank">West Perth</a>, <a href="https://www.urban.com.au/property-observer" target="_blank">Northbridge</a>, <a href="https://www.urban.com.au/property-observer" target="_blank">Highgate</a>, <a href="https://www.urban.com.au/property-observer" target="_blank">Bentley</a>, <a href="https://www.urban.com.au/property-observer" target="_blank">Glendalough</a> and <a href="https://www.urban.com.au/property-observer" target="_blank">Victoria Park</a>. Rental properties can account for up to 70% of all dwellings in these areas.
Surprisingly, most tenants live in houses and not flats or units. Census result continue to show that up to 60% of tenants live in traditional houses, although it’s true that around half of all strata dwellings exist as rental properties.
In WA the most common age group for renters is between 20 and 34. Typically, these are people in transition to home ownership. Not surprisingly then, the most common home ownership and buying age group is around 34 to 44.
Most tenants prefer a short lease, with the more common lease being six months. Tenants clearly like the flexibility of a short lease, however more than half of all such leases are renewed for a further six months when the initial lease expires.
The median rent for accommodation in Perth is now $450 per week if you include units, apartments, villas and houses in the equation. Houses alone are generally higher with a median of around $460 per week.
Darwin remains the most expensive capital with houses renting for around $650 per week, while Canberra and Sydney are similar to Perth at around $450. Adelaide is the cheapest at $330 per week.
The average rent for three bedroom homes across all eight capitals is around $405 per week. Seen in this context, Perth is about 15% above the overall Australian rental average for a house.
However, rents in Perth have been slowly coming down since 2013 with the median weekly rent dropping $25 from $475 around this time last year.
This is due to a slow-down in population growth but also from large numbers of renters having taken advantage of very low interest rates to buy a home of their own, enabling them to leave the rental system.
This in turn freed up more properties for rent and is a key reason why Perth’s current vacancy rate is now a third higher than average, sitting at 4% or 5,600 properties.
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A look at Perth’s rental market

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Rents in metropolitan Perth dropped further in recent months, down by $10 per week this year following a $10 drop towards the end of last year. The median rent is now $450 per week across city suburbs.
REIWA data shows this typically breaks down to around $460 per week for a house and $440 for a unit or apartment.
Our data also shows the vacancy rate across Perth remains high at around 4%, due largely to the economic and population slow down. It has also been boosted by many tenants having left the rental system to buy a home of their own.
The long term equilibrium for vacancy rate across Perth is 3%, so the current rate is around one third higher than it might ideally be.
Our figures show there are around 5,000 metropolitan rental properties on the market which is 56% more than the same time last year.
As the number of rental properties swell and overall rents come down, the number of people breaking their lease to find a different property has jumped significantly.
The changed conditions mean that some people are breaking leases to move into a more affordable dwelling, a larger premises or maybe a home in a much better location to suit their needs.
These outcomes are understandable and REIWA property managers are experiencing a significant increase in the number of enquiries from both tenants and property owners asking about the costs involved in breaking a lease.
Tenants need to understand that a lease is essentially a contract between two parties and leaving the premises before the agreed termination date is a breach of that contract.
Under the Residential Tenancies Act, the property owner is entitled to be ‘no worse off’ as a result of any breach by the tenant. As such, they can claim from the tenant any costs, such as rent until the premises are re-let or the original period expires, the charges for advertising for a new tenant and any unused portion of the letting fee.
These claims could add up to several thousand dollars billed against the outgoing tenant, particularly if the premises they vacate takes a while to secure a new tenant. This can be devastating to someone who has broken their lease, started renting a new property and is now effectively paying rent on two places, one of which is empty.
It’s very important therefore, that if a tenant is thinking of breaking their lease for whatever reason, that they talk to the property manager about the potential costs so they can make a considered decision about timing and budget.
This article was originally published on <a href="https://reiwa.com.au/Faq/Pages/Feature.aspx" target="_parent">reiwa.com</a>.
Image courtesy of <a href="https://www.seniorliving.org/" rel="nofollow" data-rapid_p="22">SeniorLiving.Org</a>/<a href="https://creativecommons.org/licenses/by-sa/2.0/" target="_blank">Creative Commons</a>.
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Don’t break your bank by breaking your lease

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In 2007, as the WA's extraordinary property boom reached its peak, then Treasurer Eric Ripper lifted the stamp duty threshold for first home buyers to $500,000.
As the median house price jumped, housing affordability became more difficult and the entry costs to first home buyers in particular became a real impediment. Chief among those costs was several thousand dollars in stamp duty, given that first time buyers were then typically purchasing dwellings at around $300,000.
That policy move by the Carpenter government to effectively abolish stamp duty for the majority of first home buyers has proved over intervening years to be a tremendous success. They have flourished in WA, helped along by low interest rates, the first home buyers grant, plenty of jobs and a robust state economy. In recent years first time buyers often reached more than 30% of the overall market, dwarfing the experience on the east coast.
First home buyer activity in particular has been very strong but is now trending downwards at a worrying rate. Changing policy settings at this time would be very unhelpful and a false economy.
Governments tend to underestimate the importance of first home buyers to the property market and economy in general. Not only do first home buyers take stock out of the market, they facilitate the property seller to trade-up, generating additional revenue from stamp duty as well as other business activity.
The new-home building markets also benefit as economic activity is increased through growth in supply chain business. WA ought not make the same mistake as NSW, which axed the first home buyer duty concession, or Victoria where first home buyer grants were greatly reduced. The clear evidence from these states is that first home buyer activity subsequently collapsed and has not recovered.
While REIWA understands the need for government to fund services and supply infrastructure, my concern is for the overall health and sustainability of the WA housing market at a precarious time. Current REIWA data supported by Landgate figures indicates a market downturn is likely for the second half of 2014.
Evidence from the March quarter shows a drop in sales numbers of around 6% compared to the same quarter in 2013. Listings for sale have risen to the highest level since December 2012 and rental listings are at a seven year high, with the vacancy rate now over 4% for the first time since 2010. Investors are scarce and first home buyers are dropping away. It’s time to recognise that stamp duty on property as a means to raise revenue is clumsy, inefficient and outdated.
Typical stamp duty on a median priced home in Perth is now $20,000. Bracket creep alone has pushed this up by $4,280 over the last five years.
REIWA calls on the government to have a serious look at broadening the land tax base to all property owners with the view to abolishing stamp duty altogether.
The benefit to government is steady, predictable revenue income based on land ownership, rather than unpredictable and volatile revenue income based on sales activity. The benefit to property owners is the simplicity of a modest, annual land tax as opposed to ‘bill shock’, when hit with a huge stamp duty tax in the tens of thousands when they transact.
In some cases stamp duty is so prohibitive to potential buyers that they stay put, jamming the market and not allowing established homes to flow into the first home buyer pool. A broad-based land tax was proposed by the Henry Tax Review and has merit. It has since been adopted by the ACT, which will phase it in over 20 years so it does not disrupt the market and will effectively be revenue neutral.
It’s time for a mature discussion around this proposal with the aim of creating a long-term plan for a better system of property taxes. One that’s not at the mercy of an anxious treasurer every financial year.
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David Airey

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