23/09/2010 - 00:00

WA’s booming economy placing pressure on housing affordability

23/09/2010 - 00:00

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Developers say WA is headed for a land shortage, just as the state government launches its plans to guide residential development in the metropolitan area for the next two decades.

WA’s booming economy placing pressure on housing affordability

IN the middle part of last decade, land values in the suburbs of metropolitan Perth spiked 175 per cent.

A resources-led economic boom boosted demand for housing, and developers and builders alike bemoaned their inability to satisfy demand while Perth was in the midst of a land shortage.

While the global financial crisis placed a short-term damper on housing demand, the ducks are once again lining up in a row to create a perfect storm of conditions that poses another great risk to housing affordability in Western Australia.

“None of us want to see a return to those conditions, when from 2002 to 2006 land in the suburbs of Perth went up 175 per cent in price,” Satterley Property Group managing director Nigel Satterley said.

The Australian Bureau of Statistics has forecast that by 2031 the population of Perth and the Mandurah/Peel region will be between 2.4 million and 2.8 million, meaning half a million new residents will need to be housed in 328,000 new dwellings.

Industry forecasts by BIS Shrapnel show that demand for housing in metropolitan Perth will be moderate over the next 12 months, after the previous year was stimulated by low interest rates and federal government first homebuyer incentives.

But price pressures will return to the market in the following years, BIS shrapnel senior project manager Angie Zigomanis warned.

“Into 2011, 2012 and 2013 we think expenditure and investment in the resource sector is going to continue to grow at a fairly solid clip, and that will create fairly solid income growth which in turn will start feeding into prices,” Mr Zigomanis said.

“Because we had a decline in construction over the last two years, an underlying deficiency of dwelling stock has started emerging in the Perth market.

“Even as construction begins to ramp up over the next couple of years, dwelling activity will still be below underlying demand so there will be a reasonable-sized deficiency in the Perth market.”

Land supply

Premier Colin Barnett has estimated the resource expenditure driving demand for housing in the state is $200 billion for major new projects.

“For Perth to benefit from the resources projects, Perth is going to have to grow,” Mr Satterley said.

“People don’t want to live up in the Pilbara, it hasn’t got the social infrastructure, so unless we can get housing out at an affordable price, Perth will go nowhere, Perth won’t grow.”

Mr Satterley said bottlenecks in planning and approvals processes and issues with developer finance meant it remained difficult to get enough land to market to satisfy demand.

He said there was currently just over three months’ supply of land available in the residential market.

“We can all see a land shortage coming, the market is having a bit of a breather at the moment, but once things start to recover, the shortage will be on us very, very quickly,” he said.

Aspen Living chief executive Chris Lewis agreed that with the projection of increased population, Perth’s metropolitan area would more than likely see a shortage of land.

“We now have fewer players in the market; right now what’s driving the market is the ability for developers to obtain capital, equity and finance,” Mr Lewis said.

“Almost 40 per cent of the market, traditionally, has been supplied by the second-tier developer. The second-tier developer is the one at this present point that’s struggling to obtain debt funding for what they need to do.

“For those that have the capacity, we are seeing good solid sales. It can vary area to area; some areas we are seeing higher growth than others.

“But there is now a gap in that market without those second tier developers being there, but that provides opportunity and perhaps a change in business strategy for some of the first tier developers, where they may look to have not only long-term, but shorter term projects within their portfolio.”

Port Bouvard chief executive John Wroth said he believed the market had already entered a supply shortage.

“It’s not just as a result of a history of increasing approval timeframes, it’s also a result of infrastructure and servicing challenges of a lot of areas that have been identified as residential and urban,” Mr Wroth said.

“I think that the government is moving forward in terms of expediting the approvals process and establishing development assessment panels, unfortunately they can not be applied to all land parcels.

“At the end of the day it’s up to the developer and the project team to try and negotiate what can be a very frustrating combination of low-level bureaucracy and interference by a lot of different government departments that are inconsistent in their advice.”

Directions 2031

In response to the rising population growth and extra demand for housing, the state government has developed a planning framework to guide residential development for the next 20 years: Directions 2031 and Beyond.

To halt Perth’s ever increasing spread of urban sprawl, the document sets a 47 per cent infill development target, requiring nearly half of all new residential development to be medium-to high-density projects in established urban areas.

That scenario represents a 50 per cent increase on present building trends, and requires 154,000 of the metropolitan area’s forecast 328,000 new dwellings by 2031 to be built in infill areas.

Current infill development levels represent 30 to 35 per cent of all new building activity, with densities of 10 dwellings for each urban-zoned hectare.

Directions 2031 and Beyond advocates a target of 15 dwellings per urban zoned hectare in metropolitan Perth.

Nigel Satterley said he thought an infill development target of 30 per cent was more achievable, in a 20-kilometre radius outside the CBD.

He said that higher density housing was generally up to four or five times more costly to build on a per metre basis than detached housing, which was counter-intuitive to affordable initiatives being pushed by the state government.

“Infill is not affordable, people don’t want it, it’s going to be hard to fund, hard to amalgamate the sites, while there are high costs of cleanup of sites, and infrastructure upgrading costs as well,” Mr Satterley said.

Infrastructure

Master Builders Association director of housing and economics Gavin Forster also addressed concerns with the infill policy, saying that high costs to upgrade infrastructure to cope with the added demands of more residents would run counter-intuitive to the initiative’s aim of helping housing affordability.

“In a lot of the redevelopment areas you have typically a quarter acre block with one house on it,” Mr Forster said.

“What’s been proposed is to redevelop and subdivide that into units for three to four houses, but there’s not enough infrastructure in the ground for power and water to service that higher demand.

“Western Power’s policy is everyone in the housing side gets a typical power allowance of 32 amps.

“When there are more houses being developed, that’s not sufficient to cover the demand so they have to put a new transformer in, and their pricing policy is, the first developer pays.

“As an example, Gavin Young from Palazzo Homes went to connect power at a site in Majestic Parade, Applecross, and it cost $136,000.”

Western Power’s infrastructure pricing policy has become a big issue in the industry and raised concerns about the economics of infill development, Mr Forster said.

“Builders will build anything, but there has to be the demand there, and demand is a function of price,” he said.

“If the price of the inner city is not just the cost of construction, if you have to pay an exorbitant amount to keep the services connected, then it’s going to drive people out of the market.”

Aspen Living’s Chris Lewis said infrastructure issues were not new to land or built form development, but an increased focus on regional development since the last state election had seen metropolitan infrastructure issues placed on the political backburner.

“We have seen the state government has been very focused on Royalties for Regions, and there is no doubt that’s been to the detriment of some of the capital expenditure on infrastructure in the metropolitan area,” Mr Lewis said.

“So for some of the agencies, they are now playing a catch-up game because the urban development has increased and they have not been ready for it.”

 

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