Part five – What about the Perth property market?
Despite forecasts of a tough 2023 for the Australian economy and certain Eastern states housing markets, the outlook for Perth is a strong market in both rents and price increases. Australia has always had a two-speed economy, but now this is combined with a housing shortage we can’t resolve. Expect to see limits tested in the next 12 to 24 months.
The Australian housing market is not one market. It is multiple markets in multiple cities and regions, and within those markets are smaller, sub-markets. When we break down those articles with their headlines screaming about a property crash, what we see is somewhat different. In fact, Melbourne and Sydney are declining and being our two most populous cities, they are dragging down the national numbers.
The two speed economy is part of this. In Western Australia, where despite our best efforts, our economy continues to be built on the mining industry, our economy rises and falls in different cycles to Sydney and Melbourne. Interest rates and monetary policy are set at a national level, as were efforts in recent years to cool the Sydney and Melbourne property markets using regulatory tools via APRA and ASIC. This means our economy and subsequently housing market here in WA tends to get a boost when it is not needed and is further stifled when a boost would be in order. If the national economy does start responding to recent rate rises next year as predicted, the national economy will start to slow whilst WA continues ticking along.
WA’s mining industry continues to do well and support our economy. As well as traditional resources, we also have the rare earth minerals needed for transitions to renewable energy. As a result we also have the second highest average income in the country, surpassed only by ACT. (No surprises, we know who lives there.) Yet there is a labour shortage in WA. Not only does this continue the upwards pressure on incomes, but also attracts more people to the state right when we have nowhere to house them.
WA’s housing shortage is no secret. When you have increasing prices and increasing rents, you have a shortage. The timing is particularly bad however, when coupled with a labour shortage and need to attract people to the state. Generally, the solution is to just build more houses. Unfortunately, the same labour shortage that is crippling the construction industry, along with a supply shortage of building materials means there is nothing we can do about it. Even if the state government stepped in with funding for new government provided housing and flew people in to build the houses, the materials with which to build them are simply not available, and such a government intervention would only compete with the private housing market and add to the woes and delays of those already trying to build.
The strong economy coupled with high wages and a housing shortage will keep an upward pressure on the Perth property market for at least the next 12 to 24 months. In fact, comparing the average household income to the median property price demonstrates there is room for a 33% increase in median price before we reach the sustainable price point, let alone pass it. With all these high income earners competing for housing in one of the cheapest capitals in the country, things can only go up.
As a community, we need to consider the social issues tis will create. We are already seeing the working homeless and private landlords’ preference singles or couples over families or pets. For now, all we can do is rethink housing, rethink apartments and sharing. Next time we have the opportunity to build more houses we need to do so before they are needed so they available in time.