Perth needs to encourage investors to participate in the market again to ease the continuously tightening rental market, says an expert from the Real Estate Institute of Western Australia (REIWA).

The city’s vacancy rate has dropped to 1.6% in July, the lowest level recorded since March 2008. The conditions of Perth’s rental market indicate a substantial imbalance between supply and demand.

For a rental market to have an ideal balance between supply and demand, it has to have a vacancy rate of around 3%, said Damian Collins, president of the Real Estate Institute of Western Australia (REIWA).

Perth's vacancy rate has remained below 3% for 21 consecutive months, which has ensured rents generally started to stabilise after the post-mining boom downturn, Collins said.

"However, with it now sitting below 2%, we are starting to see the impacts of limited stock, and it is only a matter of time before rents rise. In some areas, agents are reporting rents are already on the move up," he said.

Some of the suburbs in the city receiving a lot of attention from potential renters include Scarborough, South Perth, Mandurah, Joondalup, and Subiaco. There are also regions outside Perth, such as Albany and Kalgoorlie, that are starting to see their rental markets tighten, with vacancy rates hitting as low as 0.9%.

"There are a number of factors that may have contributed to lowering the vacancy rate, such as the lack of new supply due to investors staying out of the market, expats returning back to Western Australia, and investors selling their investment properties," Collins said.

Collins said it is vital for the state government of Western Australia to remove all restrictions and limitations for non-COVID-19 affected tenants with the review of the Residential Tenancies Act 2020.

"Investors are concerned about returning to the market due to the limitations on their ability to put rents to market and evict tenants who do not pay their rent," he said. "If we don't encourage investors back into the market, then the rental shortage will only get worse."

Perth recorded a rental stock composed of roughly 3,550 properties in July. This was only around half of what was available during the same month last year, according to REIWA.

A separate market update from SQM Research shows tighter conditions in Perth. In July, vacancies in the city were down to 2,803 while the vacancy rate was at 1.3%.

Perth's median rent in June was $396, according to CoreLogic. This was 2.2% higher than last year. The Western Australian capital reported the biggest annual increase in rent amongst capital cities in June.

A more recent set of data from SQM Research show that the median weekly rent in Perth was $469 for houses and $353 for units for the week ending 4 August. On an annual basis, these weekly rents translate to respective gains of 8.6% and 3.8%