WA housing affordability set to worsen with an impending dwelling shortage

The Perth property market has definitely been in the doldrums and has probably been the worst performing capital city market over the last few years, but according to BIS Shrapnel an impending dwelling shortage could see the state’s fortunes turn around in the not too distant future.

Over the next five years, BIS Shrapnel predicts that new home construction will fall short of the requirement to house the growing population by around 3,500 to 6,000 dwellings, placing pressure on rising rents and affordability.

It is expected that residential building will only rise by 3 per cent this financial year to provide an additional 21,200 new dwellings, after falling by 18 per cent for the last financial year.

And while BIS Shrapnel’s Building in Australia report suggests that, as long as interest rates hold reasonably steady, growth will be stronger over the following two years, new housing supply will still fail to meet the growing demand of 27,500 new dwellings each year over the five year period.

Managing director of BIS Shrapnel Robert Mellor, says building investment has slowed considerably across WA because of uncertainty over interest rates and the possibility that they will rise over the next 2.5 years.

He says the supply/demand imbalance is likely to create further upward pressure on the state’s house prices, however Perth’s already over-inflated median house price should help to prevent skyrocketing values. Earlier this year, BIS Shrapnel predicted an increase in Perth’s median house price over the next three years from $480,000 in June to $570,000. Some within the industry claim this 19 per cent rise is an overly generous estimate though.

According to Mellor, WA’s steadily growing population, which is largely being driven by the resources boom, is fuelling demand for more units and houses.

“That’s why you need to build to get the market in balance,” he said. “At the moment there’s going to be a shortage of 6000 dwellings in 2011-12.

“Over the next five years, we expect dwelling commencements to be in the order of 24,000 [each year, compared to] 27,500 in underlying demand.”

Although Perth’s property market is currently considered to be suffering through a recession, with five consecutive months of negative growth, Mellor says the critical housing shortage WA is facing will most likely prevent prices from falling much further. He suggests values will stabilise over the next year before strengthening once again.

“We might get back to 5 per cent price growth in 2011-12, most of that will come in the second half of the year,” he said.

“[It will rise again] about 9 per cent in 2012-13. But if the pressure builds up quickly and there’s too much price growth then the market will hit a wall in terms of affordability.”

Additionally, tenants are expected to struggle with further price increases in the already booming rental market, where rents have risen significantly over the past seven years.

“Particularly with strong population growth coming through to service the mining boom, you could be back to 6-7 per cent growth by 2012-13,” Mr Mellor said.

And if you think a housing shortage is only of concern for WA, think again.

“One of our problems in Australia is we just haven’t had enough construction in the market [in recent] years,” says Mellor. “So we’ve got shortages but now we’ve [also] got fairly high house prices.”

“We need government processes that encourage construction rather than us fighting over existing stock.”

Perth’s recent few years of property slump follows some years of massive price gains and all we are really seeing is the property market work it’s way through the normal cycle. Yes – the cycle is moving on.


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