Perth’s housing supply crunch is set to worsen after only 1050 new builds were approved in January 2023 in Western Australia, according to the most recent Australian Bureau of Statistics data.
That’s a 40-year low and comes shortly after a new Urbis Apartment Essentials report found no new apartment developments (consisting of at least 25 apartments) were officially launched in the state during the September quarter of 2022.
For comparison, the previous quarterly average was seven new developments and 651 apartments.
That meant just over 540 apartments were in pre-sales (before construction commences), significantly lower than the 2,420 apartments in presales during the same quarter in September 2020.
What’s going on?
Soaring costs and higher interest rates
There’s no doubt the WA building industry has faced massive challenges ever since the pandemic disrupted global supply chains and caused labour and material shortages. This, in turn, caused construction costs to skyrocket and lengthy project delays.
At the same time, the federal and state governments were handing out millions of dollars worth of Building Bonuses and HomeBuilder grants for new home builds and property purchases.
While the stimuli helped prop up the construction sector during the pandemic, it also massively stocked demand, exacerbating delays and cost blowouts.
Soaring costs have, inevitably, caused a drop-off in new projects, by eating into developers’ profit margins and making projects less viable. This situation has been compounded by the Reserve Bank of Australia’s interest rate hikes, which have caused borrowing costs to skyrocket and demand to slump.
A perfect storm
The construction slowdown couldn’t come at a worse time for Perth’s rental market, which is already the tightest in the country with a record-low vacancy rate of just 0.4% in February, according to SQM Research.
With demand vastly outstripping supply, asking rents have soared at an annual rate of 16.3% for the week ending 12 March.
Similarly, Perth’s wider housing market is also dealing with supply issues, with the city facing a shortfall of around 20,000 homes over the four years to 2026, according to the Real Estate Institute of Western Australia.
Bear in mind, these projections were made in May 2022, when building approvals were 77% higher than in January 2023.
Property prices and rents are closely tied to housing supply. So the fewer new homes brought to market, the more likely these will keep rising.
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