Economy Dictates Whether Perth Property Rockets Upwards
The announcement this week that Western Australia was to play a leading role in the Australia-NASA Moon to Mars partnership invites the tempting line that the sky is the limit for the State’s economy.
WA’s economy is unquestionably turning around, with office vacancy rates falling, population again inching upwards, mining activity returning and jobs being created.
At 5.8 per cent, WA now has the third lowest unemployment rate of all States, a considerable improvement on the 6.4 per cent when the last election took place three years ago.
In addition to the mining industry, WA has enjoyed a major boost to tourism infrastructure in the form of hotels and city rejuvenation.
The city’s traffic is clogged as it contends with the massive spend on roads. The State Budget includes a record $4.2 billion to build new road infrastructure across the metropolitan area and regional WA, with 25 major job-creating projects included in this Budget.
Another $4 billion from State and Federal Governments is funding Metronet, which with 72 kilometres of new passenger rail and up to 18 new stations, is a catalyst to turn more than 5,000 hectares of land around new stations into desirable places for investment in housing, jobs and services for growing communities.
With this interstellar level of spending and investment, the housing market would seem ripe for take-off. But there remain challenges.
Western Australia this week recorded the lowest wage growth in the nation for the sixth consecutive quarter (1.7 per cent). The state is largely beholden to the Chinese economy, with all the inherent risks associated with the “eggs in one basket” approach. State debt is being reined in but remains a burden at around $37 billion.
So what do these economic indicators mean for the Perth housing market? As reported last week, Perth’s two-speed property market has the potential to shoot for the stars or stall on the launch pad.
Managing Director of national real estate group The Agency, Paul Niardone, said everything was dependent on jobs.
“There has been a lot of discussion around stamp duty concessions and there is merit in some proposals, such as lowering the amount paid by seniors that are downsizing, however, in my view the main factor left to really impact the property market is jobs, jobs and more jobs,” he said.
“Employment will provide surety to the existing market and will drive population growth, which is why major projects like winning the contract for the maintenance of the Australian Navy’s submarines is so important for WA.”
With 150 agents in Perth and incorporating a mortgage broking business, Mortgage and Finance Solutions, Mr. Niardone was well placed to gauge the barometer of interest in the Perth property market, where he said first home buyers were emerging from hibernation.
“The combination of affordability, improved availability of low finance and the general improvement of the WA economy with declining unemployment has started to breathe life back into a market that has been in a declining cycle for an extraordinarily long period of time,” he said.
“The public’s sense of the start of a rising market, combined with all these factors, is providing a sense of comfort for people to finally make the decision to either buy that first home or trade-up or downsize.”
Rents were on the move across Perth, with vacancy rates at 2.3 per cent, well below market parity of 3.5 per cent.
“Investors have also started to return and I expect more to return as the yield opportunities above 5 per cent become more prevalent,” Mr. Niardone said.
The affordability of Perth property has played a large part in driving the rental market, Mr. Niardone said.
“Property prices dropped approximately 20 per cent and are still relatively stagnant, so rents have risen due to demand caused by a lack of new stock and slight population growth.”
The State Government has been advocating for higher urban density as a means of improving affordability and generating economic activity around urban centres. Small bars, local retailers, shopping centres and fashion boutiques need local customers and housing density generates this audience.
Developers, however, have been somewhat reluctant to take the investment leap as local councils serve up a hodgepodge of conflicting and vague policies and contend with the NIMBY (not in my back yard) mentality of their ratepayers (and voters).
Council rezoning policy was impeding development market opportunities, according to Glenn Callanan, Partner at Wright Real Estate.
“This is a big one – the Government has allowed all sorts of developments recently in order to provide cheaper housing but there was a lot of backlash in relation to apartments, townhouses and the like that just were not zoned for it.
“Councils had to change criteria for apartments and soften the blanket approvals and apply stipulations such as having to be near main roads and shops.
“The Government is trying to do something about affordable housing, and fair enough, but the doubt over what can and can’t be done has created confusion around pricing, especially on the bigger sites.
“It’s very difficult to price a development site at the moment as no one is really sure what can or cannot be built on it,” he said.
Mr. Niardone agreed the council and their zoning policies were restricting development opportunities and have hampered the State Government’s desire to increase in-fill developments but did not believe it had major price implications.
“As frustrating as this is and goes against good planning, in my view, it has had little effect in the current market with respect to pricing.
“The bust that followed the mining boom has driven an unusually long period of decline, which has led to current low prices.”
An apartment boom in Perth had already led to oversupply and, according to Mr. Callanan, had created a knock-on effect in the wider housing market.
“Anything competing with or even in the same price range as an apartment, has really struggled to sell over the last few years and suffered price-wise.
“It seems apartments have bottomed out and are starting to sell though now, which is a good sign,” he said.