Hope on horizon for WA property market

Industry leaders are predicting a strong future for the state’s property market, as construction costs are expected to normalise and consumers show resilience to inflation and interest rate hikes.

Speaking at an Urban Development Institute of Australia WA event today, Real Estate Institute of WA chief executive Cath Hart said Western Australians were more equipped to weather interest rate spikes than other states.

“WA will be more resilient than other states in the face of rising interest rates and we will at least see (house) prices stable and possibly grow over coming years,” she said.

“[The] WA economy and finances are among the strongest in the world, population growth has been strong and the local labour market has been the strongest in the country.”

Ms Hart pointed to a recent Reserve Bank of Australia meeting, where there were more job advertisements than active candidates in WA.

However, she said the state’s housing and labour shortage were confounding issues for the industry.

“We have low stock levels in the established market, both for sale and for rent, and build times for new homes are significantly extended,” Ms Hart said.

“As long as these remain an issue, we expect competition amongst buyers will remain high and prices will likely continue to grow.”

Ms Hart pointed to the fact that median house prices in WA were around $560,000, compared with Sydney and Melbourne at about $1.2 million, meaning WA consumers had more ability to absorb rising interest rates.

Urbis director property economics and market research David Cresp said he expected the cash rate to peak at about 3 per cent, up from 1.85 per cent currently, which would put mortgage interest rates at about 5 to 6 per cent.

However, he said higher interest rates did not necessarily translate to lower property prices.

“We’ve certainly seen period in history, certainly in the mid-2000s, where interest rates were going up and so were property prices,” Mr Cresp said.

“So interest rate rises by themselves don’t necessarily mean doom and gloom, and interest rates can go up and property prices can go up as well.”

He said high construction costs and labour shortages meant a lot of apartment projects were unable to proceed, but he could see a light at the end of the tunnel.

“Every developer I speak to is pulling their hair out, saying we really want to go ahead with projects [but] it’s just not working right now and projects are sitting on the shelf because I can’t be confident in selling it at today’s prices and then going to a builder,” Mr Cresp said.

“We’ve got too far over to one side of the equilibrium, but the good thing is we’ve got a lot of things that are going to pull us back … to that equilibrium.

“The [rental] vacancy rate is down, investors are going to start coming back to the market. We’ve got that headroom in some areas to keep pushing prices up and we are going to see longer levels of supply, so we will come back to that equilibrium.”

He said he did not believe construction costs would decrease, but their rate of acceleration–about 40 per cent in the last two years–would slow.

Ms Hart said a large part of addressing shortages of housing stock was by bringing in more skilled labour from overseas.

She pointed to recent figures showing there were about one million visas from people wanting to come into Australia waiting to be processed.

“When you look at the figures that show the very immediate impact that rate rises had on the Sydney and Melbourne property markets, you see that decline in value, and Perth being sustained, you see our rental markets being very strong, I think for people coming into Australia looking at what market they want to live and invest in, WA has really strong prospects,” she said.

She pointed to the dilemma facing the market at the moment, with such short supply of housing translating to a lack of accommodation for those skilled workers.

“The other thing I always say is moving to a policy of people bringing tents when they come into WA, because at the moment there’s nowhere for them really to live,” she said.

REIWA figures point to housing stock moving at historically fast rates, with the average time a home spends on the market before selling at 15 days and the average time a home takes to rent out to 16 days.

This is coupled with a rental vacancy rate of just above 1 per cent, where a normalised market would be closer to 3 per cent.

National greenfields research group Research4 director Colin Keane said prices for greenfields land remained steady at about $225,000 per average lot in the last two years.

He pointed to a spike in demand from June to September 2021, followed by levels returning to “moderate and healthy” levels.  

“The reason you didn’t have massive price growth in the land market is because unlike Sydney Melbourne and Queensland your duration of the peak period wasn’t enough to fire high price growth,” Mr Keane said.

“You need to have strong demand for about a year before that sets fire to prices.”

Mr Keane anticipated about a 5 per cent growth in the price of Perth land in the 2021-22 financial year.

Mr Cresp and Ms Hart agreed there was a strong need for greater investor activity in Perth’s property market.

“The housing continuum is under more stress than it's ever been before,” Mr Cresp said.

“The investor market that we traditionally relied on 30 per cent of demand comes from investors historically, these days is just not there.”

In particular, Mr Cresp said, investors in Perth’s apartment and housing market had seen five years of property prices going backwards.

“Suddenly [the] story that property prices never go back which they only go up has really been unhinged,” he said.

“The Perth market is really nervous about property investment.”

Mr Cresp said the build-to-rent market would plug the gap in the investor market to a degree, and in his view, the supply of build-to-sell apartments would decrease in coming years.