Analysis: the property boom waiting to happen

If Peter Slipper was “an accident waiting to happen”, as some people are saying after the event, why can’t it be said that the Western Australian property market is “a boom waiting to happen”?

There is, of course, no connection between Slipper, the suspended Speaker of the Australian Parliament, and Perth property.

But, there is a connection to the ability of observers to see through a situation, interpret the evidence, and predict an outcome.

In Slipper’s case there was a long record of problems with Parliamentary expenses including a requirement to repay $20,000 in wrongly-claimed entitlements.

So, when his situation achieved critical mass, to use a term applied in nuclear weapons testing, the Canberra press gallery and some of Slipper’s fellow Parliamentarians where quick to say “I told you so”.

The problem with this after-the-event commentary is that not only is it easy to do, but begs the question that if Slipper was having problems with his taxi chits and staff members then why didn’t someone speak up before this week’s explosion of publicity?

The answer is that most observers either ignored what they saw, or didn’t believe it.

That situation, of seeing but not believing, also appears to be the case with WA’s property market which is either flat, or trending down, as the State soars away on a growth trajectory that has the rest of the country gawking in a combination of awe, and jealousy.

Two economic reports, one released yesterday and one due today, confirm what everyone in Perth knows, that the State is bursting at the seams.

Commsec, the stockbroking arm of the Commonwealth Bank, highlighted the difference between WA and the rest of Australia in its State of the States report which said the country needed to be viewed as “WA and the rest”.

“In the latest (State of the States) report the best way to describe the situation is WA first and daylight second,” said Commsec chief economist, Craig James.

By almost every economic measure, including: job creation, retail sales, construction, equipment investment and overall economic growth, WA is booming while the rest of the country stutters.

Property prices are, however, the exception. But they are an exception that is so out of kilter with the evidence presented by Commsec, and likely to be confirmed later today in the Deloitte Access Economics Business Outlook report.

It is a courageous forecaster to say that any market is wrong, but in the case of Perth property there is an opportunity to be ahead of events because it is impossible to imagine that residential house prices will remain flat at a time when:

• Unemployment is at 4 per cent and heading lower.

• The population is expanding rapidly.

• Overall economic output, according to Commsec, is 32 per cent above the average of the past 10 years.

• Retail spending is 21 per cent above the 10-year average, and

• Construction work is 82 per cent above the average.

The cause of this dramatic economic outperformance is the mining boom which, despite a current hiccup caused by uncertainty about China’s growth rate, has years to run with a possible slowdown in iron ore project construction being replaced by a surge in oil and gas investment.

And then there is best indication of all when it comes to predicting a surge in property prices, soaring rents, and queues of people at most rental properties when they come to market.

Explanations for Perth property failing to respond to the State’s overall growth include relatively high interest rates, and political uncertainty at a national level with the popularity of the government close to an all-time low.

Time will fix both of those issues. Interest rates seem highly likely to fall next month, and the government seems highly likely to follow next year.

Remove the uncertainties from the property market and the other factors identified by Commsec make it easy to predict a property boom before the event.