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The Australian housing sector has not found stability in 2018, and it should face further knock-on effects in 2019 as many markets find rental shortages increasing by the month.

A lack of available housing, as well as increases in mortgage rates and drops in disposable income, mean that various conditions are making it difficult for Australians to buy houses. As many people struggle to get on the housing ladder, fears are growing that average citizens will have problems as they look to rent.

While this may be good news for homeowners who are letting out property, the long-term effects will cause prices of rented accommodations to spike up, and fewer people will be able to purchase homes. This means that less capital will circulate in the economy, and analysts are saying that Western Australia is one of the regions that will face the most exposure to these issues.

Leading property experts in the area believe that Western Australia is ready for a return to the high rents seen in property booms. Plunkett Homes CEO Tony Pritchett said that during the last boom, renting was ‘virtually impossible.’ He believes that a similar situation is not too far off.

With a so-called perfect storm of events contributing to a squeeze on the real estate market, Pritchett said that in addition to notably high rents, such conditions in the past meant that ‘queues for home opens stretched out the door, and people were bidding over the ‘asked for’ rent just to get a roof over their heads.’

As stark warnings from analysts and economists begin to increase in frequency, fears are arising that unless such issues resolve, a lack of disposable income worsened by higher rents could affect other parts of the economy, including those that rely on sales to stay afloat.

Data released by the Real Estate Institute of Western Australia (REIWA) indicated that rental vacancy rates are the lowest that they have been for some time. Pritchett said that the ‘steepness of the recent drop’ is the most interesting aspect of the data. Prime Minister Scott Morrison has repeatedly said that he wants house prices to come down, but only if this can occur slowly to avoid shocks to the market. With rental rates rising so sharply, may suggest that arresting the problem may not be the easiest task.

One issue, according to Pritchett, is that in a normal cycle, the market would ameliorate any of these issues, and people would not think too much of it. However, the same number of houses are no longer under construction or available for purchase, and this means that there will be no market cap on rising rental prices, as demand will increase while supply stands still.

Pritchett said that these circumstances are due to two key issues: the Royal Commission inquiry into financial misconduct and the big Australian banks. The inquiry revealed a range of serious allegations involving poor lending practices, which has seen some major lenders rein in their offerings, while the banks have sought to allay dropping profit margins by bumping up the mortgage interest rate. Until the banks regain some composure and start moving the market more quickly with interest-only loans, rental shortages are only likely to increase, according to Pritchett.