CONTRARY TO THE OPINION OF SOME, THE LAST THING THE DEVELOPMENT INDUSTRY WANTS IS AN OVERHEATED MARKET BECAUSE A RAPID ESCALATION IN PRICING BRINGS IN SPECULATORS WHO TRY TO BUY AND SELL ON THE SAME RISING MARKET
On Tuesday the Census Population Clock clicked over the 23 million mark with Australia’s population growing at a million people every two and a half years. Currently we have one birth every 1 minute and 44 seconds, one death every 3 minutes and 32 seconds and a net gain of one international migrant every 2 minutes and 19 seconds.
WA is a major contributor to that growth with 81,700 moving here in the twelve months to September 2012. Based on the average number of people per household this would mean that we would need over 30,000 additional dwellings to accommodate that growth. Unfortunately we have not met that target.
One of the big challenges facing Western Australia is supply is usually triggered by purchasers whether owner occupiers or investors. That may sound obvious but it leaves WA vulnerable to undersupply during periods of low confidence. Even apartment construction needs a high level of presales to meet financing requirements.
The most vulnerable in our community when supply is constricted are those that need to rent. We have seen over the three years to December 2012 the vacancy rate fall from 4.7% do 1.9% with average house rents going up from $375 to $460 over the same period. Worse than the cost is the fact that many people cannot get accommodation, even if they can afford it. There is simply not enough supply.
The challenge is who can break the cycle? Developers are pushing more land through the approvals system with applications for conditional subdivision approval increasing 56% increase when comparing December 2011 with December last year. Unfortunately it takes a long time to get through the system and final approvals have only risen 4 percent over the same period.
Developers can sell land once it has been conditionally approved but dwelling construction cannot commence until final approvals have been received and settlement occurs.
Contrary to the opinion of some, the last thing the development industry wants is an overheated market because a rapid escalation in pricing brings in speculators who try to buy and sell on the same rising market. This exacerbates supply issues and can leave developers competing against their own product when the speculators shed lots when they think the market has reached its peak.
Developers are turning on the taps full blast to ensure sufficient land supply, let’s hope it meets demand.