Escalating rents and changing lifestyle choices could transform the way Perth residents chose to live – with obvious consequences for investors

Perth is apparently not quite the city many think it is. For a metropolis that takes pride in its strong family appeal – it has the largest inner city park in the world and there are over 500 schools – the city has a hidden side that even its most familiar observes may not realise.

Despite postcard images of boy scouts rafting the Swan and fathers teaching children to surf, almost one in four residents lives alone – and their numbers are rising.

ABS Census figures show that over 2011 a record number of Perth residents reported that they did not live with other people, a number that rose the closer one travelled to the CBD. Within inner city suburbs like Subiaco, roughly 40% of residents told census takers that they lived on their own, a steep increase from close to a third who claimed to live this way in 2006.

That the city’s demographics are changing could have a dramatic impact on property markets. Singles typically choose to dwell in units, townhouses and terraced apartments, which already outperform detached houses in many parts of the city. If trends in lifestyle choices are anything to go by, this is a situation that may well intensify in the years ahead.

“Units offer a lot of advantages that you won’t get with houses,” says Rich Harvey, head of buyer’s agency Propertybuyer.com.au, who claims that as new houses are getting built further and further away from city centres it is often the case that units are being released in better locations, much closer to the action, but at much cheaper prices than similarly placed houses.

As it stands, the Perth unit market is much less developed than in Sydney and Melbourne, which together account for over two thirds of Australia’s entire unit market. If an increasing portion of the city’s housing stock were to become units, what would this mean for investors?

Unit demand

Recent indicators show that units have tremendous appeal among Perthites. Units in North Fremantle are currently the city’s top capital growth performers across any category of housing. Here, prices climbed 43% in the 12 months to August – a rise that equated to roughly $330,000 in capital growth.

Unit markets also make up four of the top five capital growth performers over this period. Townhouses and apartments in the eastern suburb of Kalamunda are the city’s second best performers, charting in growth of 39%, according to RP Data, while units in Martin and Mount Pleasant round up the top five.

Units have also enjoyed more rental growth of late than houses. The Real Estate Institute of Western Australia (REIWA) reports that in the three months to August median unit rents climbed $20 to reach $430 a week. In contrast, median house rents rose only $10 to a figure of $450 per week.

REIWA president David Airey points out that this has followed successive quarters of previous growth. Rents across all property types increased $10 over the March quarter and $10 again over the June quarter. He attributes the continued growth to pressure on the rental system.

“Our state has the highest rate of population growth in the country and this is placing increasing demand on the rental system. The number of properties listed for rent has fallen 15% from almost 2,700 properties in early July to 2,300 by the end of August,” he says.

One reason for the stronger performance of units in many suburbs could simply be affordability. Airey says that first homebuyers have been active in Perth but they have been picky about how much money they are willing to put on the table for a property purchase.

“First homebuyer activity is strong and this means that a lot of the stock for sale at the more affordable end of the price range is being snapped up by young buyers,” he says. As it stands, the median price for a Perth unit remains roughly $70,000 cheaper than a house.

City strength

Even if the Perth unit market does develop over the next few years, for now, Airey says that the city needs more landlords – and rental demand is strong for all property types.

“Investors are not replenishing the housing system with much needed rental stock as dwellings are being removed from the market by owner-occupiers,” he says, adding that WA’s increasing population and decreasing stock of listings for both sales and rentals would continue to put pressure on the housing system until supply could better meet demand.