The extension of the ban on rent increases is likely to hurt tenants in the long run as it could potentially cause a sudden boost in rental costs next year, according to the Real Estate Institute of Western Australia (REIWA).

The state government of Western Australia recently announced that it will extend the Residential Tenancies (COVID-19 Response) Act until 28 March 2021 — this means that the ban on rent increases and moratorium on evictions will stay in place.

In a statement, REIWA said the state's vacancy rate is at a 12-year low of 1.3%, with only approximately 3,000 rental properties in Perth currently available for tenants to lease.  This is a significant decline from the 6,599 properties available to rent and the vacancy rate of 2.6% last year.

"Low vacancy rates are normally a trigger for investors to enter the rental market which increases stock levels, however due to the Residential Tenancies Act, investors appear reluctant to buy," REIWA said.

When vacancy rates lower and competition builds up, rents tend to increase gradually over a longer period of time and in small increments. This, however, is not going to be the case in the current market conditions, REIWA said.

"If the current ban on increasing rents is lifted in March 2021, it will be reasonable to assume that landlords will have to significantly increase rents to match the market," REIWA said. "This will mean that tenants do not have the opportunity to have their rent increased, in small, manageable increments but will probably face a sharp price correction."

However, landlords are feeling the more immediate impacts of the extension. REIWA said more investors are being forced to sell their investment property, adding pressure to rental stock.

"Landlords have experienced no income growth in more than three years as the median rent stayed at $350 for 12 consecutive quarters," REIWA said.

In an earlier statement, Damian Collins, president of REIWA, said since the announcement of the extension, the REIWA Information Service team has been inundated with calls from landlords and tenants who have been negatively impacted by the government's decision.

"It is clear from the sheer number of calls to REIWA's Information Service and the recent media attention, that unfortunately there is a significant number of West Australians unnecessarily disadvantaged as a result of the blanket decision to extend the legislation," he said.