Why do rents increase?

Jan 22, 2023

It’s 2023 and the subject of high rental prices remains a hot topic of conversation within the state of Western Australia. Looking at the data, median rent in Perth for the Sept 2020 – Sept 2022 period have increased from $380 to $500pw respectively (REIWA 2023). But what causes the rise?

The biggest driver of rental prices are market forces – rental supply versus rental demand. The more people seeking to rent property, the quicker the vacant properties are filled with tenancy, leaving little left available but with a continued high demand. This high demand plus low supply causes an increase in competition, and therefore prices to rise. On the reverse of this, in situations where there is an excess of vacant properties in relation to prospective tenants, demand falls as competition decreases – causing prices to drop.

There are other factors that play a part in rental prices, including property features, condition, and location. Properties that have amenities that are appealing to tenants, such as air conditioning, parking, dishwasher, etc., or properties located in a desirable area, achieve a greater demand and therefore a higher price. Economic influences such as interest rates, region income and employment rates also play a role.

How do rent increases occur within an existing tenancy?

Periodic Lease

Within a periodic lease, rent increases can occur every 6 months (and no sooner), with tenants requiring at least 60 days notice in writing.

Fixed-term Lease

In a fixed-term lease, the lease agreement must specify how much the rent will increase, or the method of calculating future increases. If the written agreement stipulates that rental increases can occur, it can only be enacted at 6 months from the commencement of the tenancy, or 6 months from the date of the last increase. Landlords must give at least 60 days notice of a rent increase to tenants in a fixed-term lease.

Whilst market forces, economic factors, and property specifics all play a role in rental prices, the retention of a great tenant should also be considered when determining how to price rent or when calculating a rent increase.