Growth in the Western Australian economy continues to surpass growth in all other states, supported by solid growth in private business investment. Household consumption growth was also strong, driven by the State’s strong population growth as well as s high AUD, which has increased the purchasing power of domestic consumers.

While Western Australia’s non-residential investment pipeline has fallen on a year by year basis, an increase in dwelling commencements will continue to fuel the construction sector.

In 2012/13, the Housing Industry Association expects the number of dwelling commencements throughout the State to increase by 25 per cent to 21,290 (still a modest level by standards of the past decade) before rising further to a much more respectable level of 23,020 in 2013/14. Both the detached housing and multi-residential sectors should share in this growth.

On the back of this increased building activity, residential construction timeframes are expected to lengthen and demand for labour and materials extended. However, as construction growth is expected to be spread across urban infill, medium and high density – not just greenfield sites – there should be a wider range of product and of labour/skill source; reducing the possibility of large cost increases.

Recent slowing of capital works in the resource/mining sectors will also contain cost increases by releasing trades to the Perth metropolitan and South West regions. And while this remains, we expect cost increases should be maintained at 3-4 per cent per annum and not ‘skyrocket’ towards the 15 per cent range.

However, as this publication also shows, and in contrast to elsewhere in Australia, the latest HIA Trades Report indicated a moderate shortage of residential construction trades workers in Perth.

Whilst in regional WA there is roughly an even balance of supply and demand, we expect this to tighten as housing construction picks up.

Looking ahead at the broader property market, probably the most vulnerable market in the next three years will be the commercial office market as any downturn in economic growth is quickly followed by reduced demand for office space and the emergence of a significant ‘secondary leasing’ supply – reduced demand by legal, accounting, engineering and architectural firms linked to the resources industry.