Capacity restraints stifle ravenous economy

23/10/2007 - 22:00

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Have you ever tried ordering champagne glasses in Perth lately? Well I have, and let me tell you it is not an easy task.

Capacity restraints stifle ravenous economy

Have you ever tried ordering champagne glasses in Perth lately? Well I have, and let me tell you it is not an easy task.

It took more than a few phone calls to find a hire company that can help me cater for the 120 guests at my December wedding. Providing a decent vessel for some bubbles is the least I can do for the 80 friends and family I am dragging over from the eastern states to what my Sydney born fiancé calls the “boom state”. Or to quote him more precisely: “the boom – where everything is more expensive – state”.

Judging by the capacity constraints I have come across in glassware, garden chairs, jazz bands and hairdressers, there are more than the usual number of parties going on in the west this summer. No surprises there I guess, and when I take off my bride’s hat (I guess that would be a veil) and put my economist’s hat back on, I get a little worried about what Western Australia’s extraordinary growth is doing to the state’s ability to cope with what is often spruiked as unquestionably healthy activity.

The problems go well beyond party hire. Roads, offices, workers and even tractor tyres, from what our WA clients tell us, are quickly being snapped up and can’t be brought in or built up quickly enough to meet the state’s hungry appetite. And of course when supply outstrips demand there is one unhappy consequence: higher prices.

Unsurprisingly, the strong demand for housing is a large part of the inflation problem, with many from the east and overseas keen to share in WA’s spoils.

But of course it is not just at the household level where prices are rising, as businesses compete with each other for valuable resources. The cost of building construction rose 8.4 per cent over the year in WA and office rental vacancy rates in Perth’s CBD have fallen to 0.7 per cent, according to the Property Council of Australia. This is well below the 4 per cent average for all other capitals.

Finding workers has also been challenging for many companies that have been forced to pay well above market wages, especially for those working in remote locations. WA hourly pay rates are growing more strongly on average than in any part of the country at 4.7 per cent in the year to June. It could be argued that this is still subdued given the prosperity being enjoyed by the state’s businesses.

The problems of a booming state go beyond higher prices. In the recent past, the state has experienced power shortages at high-use times and water problems have long been foreshadowed.

A new report out this month from Australia’s Academy of Sciences showed that Perth’s ground water has subsided, which will have implications for urban planning. Air congestion and traffic problems are also building, with more than 10,000 new vehicles a month being added to WA roads at the moment. That is more than double the number of new cars being sold just six years ago.

The WA government is playing its part to ease some of these constraints, allocating $21.6 billion over four years for hospitals, schools, prisons and police stations as well as for electricity, water and road infrastructure.

Ironically, in doing so, it risks crowding out the private investment that it is trying to support. The government acknowledged as much when reviewing its capital works in the budget and revealing that it would have to delay several projects by six to 12 months because of labour shortages.

There is no doubt, in my view, that Perth remains the most desirable capital in the country to live and its commodity based prosperity is enhancing the city’s attractiveness. But it is not a costless experience. Just ask those trying to move some iron ore pellets, or host a wedding.

•Cherelle Murphy is a senior market economist at ANZ. (Article prepared with ANZ’s Victor Thianpiriya).

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