Construction has been and will remain a stable industry within Australia’s booming economy. However, housing affordability remains an ever-growing issue, especially in capital cities. Finding a house or apartment that isn’t the design equivalent of a blank sheet of A4 paper at a reasonable price in any Australian capital city has become as difficult as finding a needle in a haystack. A higher demand always leads to an increase in supply, but a new shift in Perth’s economy threatens this growth.
The Australian Bureau of Statistic recently released some interesting statistics in its Residential Property Index, sighting a 4.1 per cent rise in housing prices during the December 2016 quarter. This indicates a 25.65 per cent growth in Australian houses over the last five years, with only a 13.2 per cent growth in the average Australian wage.
Recently Perth’s housing prices have begun to fall unexpectedly, with sources referencing over a four per cent drop in the last year. The Real Estate Institute of Western Australia revealed that the majority of housing transactions occurred within the $400,000 to $450,000 price range, with the median house price in Perth slipping 3.5 per cent to $505,000 for the three months leading up to March 2017. To homebuyers or property investors this could be a once in a generation opportunity, and these prices are forecast to drop even further in the future. But how does this affect Perth’s construction industry?
This fall in prices has been reflected in the construction industry. Turner & Townsend’s International Construction Market Survey of 43 markets across the globe has placed Perth as only the 21st most expensive area to build in. Perth was 'the only city to experience a decrease in the costs of construction'. Considering Perth’s growth over the last couple of decades, this was an unexpected decline.
The end of the mining boom has had an unprecedented impact on Western Australia as a whole. The state that was previously a booming, opulent mining hub has now begun to struggle with unemployment, housing affordability and an astonishing loss of 20,000 jobs in the last two years––, causing a lot of people to pack their bags and move East. This drop in economic growth and population has resulted in a ‘cold' construction and housing market.
The lack of residential construction has significantly decreased the demand of trade professionals; this decrease in demand has resulted in a reduction in cost. This trend, without assistance from the government, could result in a further downward spiral for Western Australia, resulting in an economic crash caused by various factors such as unemployment, high living costs and a decreasing population.
There is some good news for Western Aussies. Chinese investment in Perth is reported to have increased over the last couple of years, with further increases expected. Speculation regarding the future fall of the Chinese Yuan along with the opportunistic market in Perth has offered Chinese investors and homebuyers a good-looking prospect, resulting in a 10 per cent increase in investment over the last year. Due to Perth’s location, affordability, lack of pollution, weather and match of the Chinese time-zone, the market looks promising.
Foreign Investment Review Board rules only allow non-residents to buy new properties or off-the-plan properties. This means foreign investment is a direct investment into the construction of further residential properties, providing Perth’s construction industry with an escape from the plummeting economy.
Billions of dollars of investment into private infrastructure such as hotels, apartments and shopping centres is soon set to further bolster the market. This investment will create thousands of jobs through construction projects over the coming years and is assumed to keep the WA economy afloat, along with enhancing local communities to drive demand to nearby residential property.
Ultimately, all indicators suggest a fall for the next two to four years while construction projects get underway and are completed. With a renewal in Perth’s economy forecasted in the not-too-distant future.