Perth's vacancy rate dropped to 2.0 per cent in March, according to REIWA.
The fall comes after the vacancy rate tightened from 2.6 per cent in December and January, to 2.2 per cent in February.
REIWA President Suzanne Brown said the decreases were concerning, with rental supply facing a triple threat.
"Adequate supply is key to a healthy rental market, and in WA we rely on investors to provide over 86 per cent of private rental supply," she said.
"However, they are being targeted by both the State and Federal governments. At the Federal level changes to the Capital Gains Tax discount and negative gearing are almost guaranteed at the next budget.
"In addition, a recent news story teased a change to no grounds terminations at the WA Government's May budget.
"The ongoing speculation around these potential changes is causing a lot of uncertainty for investors and our members are now reporting some investors are pulling out of the market to put their money into more stable assets.
"The WA market has not fully recovered from the last mass exodus of investors and another drop in supply will be detrimental for tenants. The vacancy rate will fall further, competition for property will increase, and there will be more upward pressure on rent prices."
Ms Brown said compounding REIWA's concerns for the rental market were the growing issues in the building industry due to the conflict in the Middle East, and the end of the National Affordability Rental Scheme (NRAS) in June.
"The war is already affecting the cost to build a home. It is also affecting the supply of land and will delay completions due to increases in development costs," she said.
"As we saw during COVID, when the new homes market is constrained, the rental market bears the brunt as the system's shock absorber, accommodating households who are unable to move into completed properties.
"Further, the completion of the NRAS will see about 1,500 affordable rentals return to market rates. If rental supply declines further, these tenants will face significant affordability challenges. Many may try to turn to social housing, which we know has a long waiting list."
Ms Brown said while rental supply had increased over the past couple of years, it remained below the peak recorded in early 2021 and the improvement wasn't uniform across Perth.
"We've seen the greatest improvement in supply in outer-lying areas where investors have bought house and land packages," she said.
"As an indication of the number of rental properties in a local government area, the estimated number of bonds has increased by between 15 and 20 per cent in the Cities of Armadale and Kwinana, and close to 10 per cent in the Cities of Rockingham and Wanneroo.
"It is closer to the city, where most people want to live, that we have seen the greatest decline, and therefore strong competition for available homes.
"The estimated number of bonds has declined by more than 20 per cent in the City of Cottesloe; between 10 and 15 per cent in the Towns of Cambridge, Victoria Park and Mosman Park, and Cities of Stirling, Nedlands and Vincent; and close to 10 per cent in the Cities of South Perth, Subiaco and Belmont.
"We all want better outcomes for tenants, and the way to achieve that is with stable policy settings and a focus on creating new supply, not by targeting investors."
