Property prices in Perth have been on a big upward swing for the last year. In May, prices in Perth saw the biggest annual increase of all capital cities, up 22.0%, according to CoreLogic. Projections show that this growth trend is set to continue. Domain predicting a 6-7% increase in median house prices for 2024, while NAB has forecast a 13.7% rise.
But what is fuelling this growth and can it be sustained?
Lack of supply
There is an imbalance in the current market between supply and demand. To start with, building approvals are low, down 0.9% in Western Australia between March and April according to the Australian Bureau of Statistics (ABS). This has limited the number of new properties entering the market, creating a competitive environment among buyers and putting upward pressure on prices.
A further bottleneck has been caused by delays and rising costs in the construction industry. Rising material costs and labour shortages have significantly increased the cost of building new homes.
Urban Development Institute of Australia WA chief executive Tanya Steinbeck said tradespeople had moved away from WA prior to the pandemic, mostly in search of better pay. Then, federal and state building incentives meant a sudden influx of building demand which could not be attended to by the limited number of builders left.
“We were met with a huge spike in demand and no workforce. Then we started to see supply chain issues and the cost of materials go through the roof,” she said.
Increased demand
In 2023, WA saw a 3.3% increase in population, according to the ABS, the largest of any state. This is being driven by a strong resources sector and interstate migration. As more people move to the city, the demand for housing has increased, putting upward pressure on prices.
Affordability
The relative affordability of Perth’s housing market compared to other Australian cities is attracting interstate buyers. Even with its 22.0% annual growth, the median home value in May was $736,649. This ranked the city sixth-most expensive according to CoreLogic, followed only by Hobart and Darwin.
Interest rates expectations
Anticipated interest rate cuts are also encouraging buyers to enter the market. Prospective buyers, anticipating lower borrowing costs in the near future, are motivated to purchase properties now to take advantage of the expected cuts.
Sustained growth
Although it is difficult to predict exactly how much further prices can increase in Perth, it seems likely it will continue if the factors mentioned above remain. Both federal and state governments have put in place policies and plans towards improving supply and easing the tight market, but projections show this will not happen quickly. So, with sustained demand, prices are likely to continue growing.
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