WESTERN AUSTRALIA IS HEADING TOWARDS A SEVERE HOUSING SHORTAGE AS THE STATE CONTINUES TO EXPERIENCE RECORD POPULATION GROWTH.
According to well respected economist, Paul Braddick from the ANZ, we are likely to be 90,000 dwellings short in Western Australia by the middle of this decade.
According to the National Housing Supply Council we were already 32,000 dwellings short in 2011 and with our slow market conditions over the last few years, things were only going to get worse.
One of the challenges for housing supply is that virtually every private sector dwelling that is constructed needs a buyer before it is commenced. For medium and high density, financial institutions require a hundred percent (or more) coverage of any borrowing prior to the project getting the go ahead and builders usually only construct housing when they have a contract with a buyer. Whilst there is some “turn-key” construction (where the dwelling is built and the purchaser buys it as constructed) that is still only a small percentage of the market.
Of course that direct link between housing construction and purchaser is a safety net from the over construction that occurred in some parts of the USA but it is problematic in periods of strong migration growth where people are looking for rental accommodation on arrival.
The government and industry are taking this undersupply very seriously. Nobody wants a repeat of the mad rush in the middle of last decade which saw affordability plummet and eventually the market crash.
The State Government has a target of 20,000 affordable homes for those on low-moderate incomes. They also help out with financing. Indeed, the Keystart loan income caps were adjusted last week along with the maximum property price.
Unfortunately that does not solve the problem. In the twelve months to the end of March this year we had a population growth of 73,300 or around 1,400 additional people every week. Using the census data for the number of people per household we would need an additional 542 dwellings every week to keep pace. In the twelve months to June 30 this year there were 17,495 dwellings commenced which means we are falling behind at a rate of 30 dwellings every day!
While first home buyers activity is at its highest level in three years, supply is not keeping up with demand pushing the median rent in Perth up 13.9 per cent over the past year. Investors will return, but it is unlikely to be in time to avoid the looming crisis.