Western Australia has fallen behind its targets under the National Housing Accord, with the state already struggling to meet the required pace of new home construction.
With a goal of 130,000 new dwellings by July 2029, the state needs to complete around 6,500 new homes per quarter.
However, the latest Australian Bureau of Statistics (ABS) results show that in the September quarter of 2024, only 5,924 new dwellings were completed. That’s 8.8% below target.
Several factors have contributed to this shortfall, placing significant pressure on the industry.
Cost of construction
The cost of building new homes in Australia has continued to climb. According to CoreLogic’s latest Cordell Construction Cost Index, residential construction costs grew 3.4% over the 12 months to December 2024. This was the largest annual increase in construction costs since the year to September 2023 (4.0%).
In November 2024, the Property Council of Australia found that over 10,000 new apartments across WA were stuck in the pipeline, due to high construction costs.
Labour shortages
To make matters worse, the construction industry in WA is facing a critical labour shortage. The state government has made some effort to increase the number of skilled tradies coming into WA in an attempt to close the gap. This includes offering fast-tracked skilled worker visas and offering to cover relocation costs for skilled workers from New Zealand.
But, these efforts might be too little, too late, as WA already has a backlog of housing construction. KPMG found that as of 30 June 2024, Perth had 3,180 dwellings approved where construction had not yet commenced – a staggering 77.3% increase from the same time in 2023.
High interest rates
High interest rates have made financing more expensive for both developers and homebuyers. Once again, the state government has made attempts to help builders and developers. In 2024, it extended its Builders’ Support Facility — an interest-free loan designed to help residential builders complete unfinished projects.
But, with the official cash rate holding steady for more than a year at 4.35%, homebuyers have felt the pinch of increased borrowing costs. In the December 2024 quarter, ABS data showed the number of buyers in WA who took out home loans for the purchase of newly erected dwellings fell 8.5% year-on-year to just 600.
Impact on the market
The shortfall in new housing supply is already affecting the market, with the imbalance between supply and demand putting upward pressure on prices. WA is already experiencing a tight rental market, and without sufficient new homes coming online, competition for available properties is expected to intensify. This could further affect affordability, particularly at the lower end of the market.
However, there are also opportunities for buyers in this tight market. First, with rising prices, homeowners can take advantage of strong capital growth.
Second, listings of existing homes have increased 5.0% year-on-year, according to SQM Research. This offers more options for buyers.
Finally, despite the slow delivery of housing, WA’s economy remains incredibly strong, once again leading all other states in the Commonwealth Bank’s State of the States report in January 2025. This is likely to continue to support population growth which means more people who need somewhere to live — a prime opportunity for investors to provide rental homes.
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