A unique and interesting feature of the Perth housing market is the dichotomy of the strength of new dwelling sales and the decline in established market turnover.
A unique and interesting feature of the Perth housing market is the dichotomy of the strength of new dwelling sales and the decline in established market turnover.
On a number of metrics, Perth’s established housing market has so far underperformed previous cycles.
Turnover remains below the 20-year average, peaking in April/May last year at 21 per cent below the peak of the early 90s cycle, and more than 30 per cent below 2006 highs.
Capital growth lifted in 2013 – especially at the more affordable end of the market – as buyers rushed to take advantage of low rates, but recently price growth has eased and is expected to ease further. According to Westpac, consumer house price expectations fell significantly in June to the lowest levels in the country.
While buyers are more reluctant to buy established homes, more owners are listing their property. House listings are up 22 per cent on April 2013 lows. This lift in listings has pushed up selling times in 2014 to an average of 57 days compared with 36 days in 2006.
Owner-occupiers are particularly reluctant to buy and sell. Interest rates are not a big factor for this cohort so it is hard to see the established market rebound significantly in the second half of the year.
Meanwhile, new dwelling sector activity continues to break numerous records.
Dwelling approvals in 2013-14 topped 30,000 for the first time on record, with close to 25,000 approvals in Perth alone compared with 15,000 two years ago.
First home buyer interest in new dwellings has more than tripled over the past two years, with grant and stamp duty changes encouraging close to half of first home buyers to purchase new rather than established homes.
Although the land sector is not as hot as it was early last year, demand remains very strong. Developer lot sales lifted in June and early July back to March levels. Supply has lifted considerably over the past year (up 22 per cent), yet listings still remain 29 per cent below average levels and settlement timeframes are in excess of six months.
Inevitably, the effects of a slowing of established market turnover will flow more significantly through to the new dwelling sector. But with interest rates unlikely to move anytime soon, the Perth housing market is now in uncharted territory.
Densification patterns
Perth has experienced numerous periods of rapid change. From the late 1890s gold rush era which encouraged a flood of migrants keen to make their fortunes – and a tripling of Perth’s population – to the more modern iron ore era during which strong immigration lifted Perth’s population from 1.5 million to 2 million in a decade.
While this growth has brought challenges (congestion) and opportunities (Sunday trading), the most noticeable impact has been on Perth’s urban landscape. Traditional detached houses have been replaced with duplexes and townhouses, and apartment developments have popped up not just further from the CBD, but also away from traditional coastal destinations; in Ellenbrook, Midland and Armadale.
It’s instructive to recognise that the change in urban form has not been uniform or predictable. Think about the forces that drive the transition from detached housing to two-storey townhouses or straight to high-rise apartments. Consider also density in outer-ring suburbs. Could anyone in the 1990s have confidently predicted that apartments would be viable in new greenfield areas without heavy rail?
RPS has recently explored this issue. The focus for the analysis was to understand the extent of densification geographically over this current cycle by looking at the housing stock and recent building development trends.
Firstly, areas were given a ‘dwelling density’ score based on the housing stock as of 2011. Unsurprisingly, the Perth CBD topped the density list followed by other inner ring suburbs. Fremantle and Scarborough also scored highly, and so too did new areas such as North Coogee.
The main focus however was on determining which areas in WA are undergoing the most significant lift in density during this current cycle. This involved assessing development trends since 2012 and comparing these to the 2011 results.
Topping the list was Cockburn Central and neighbouring Success. The Rivervale area was second, with numerous high-rise developments delivering close to 1,000 apartments under construction and in the pipeline. Subiaco is also undergoing increased development, and a future redevelopment of the defunct Subiaco Pavilion will be a catalyst for further high density development in the area.
Outside of the inner ring, Midland was high on the list, with the MRA keen to see a lift in density around the new Hospital and potential train station realignment.
Part of the densification push has been driven by planners, but the most significant drivers have been structural pressures and social and economic trends. And the challenge for policy and investment decision makers is understanding these pressures in order to attenuate negative outcomes.
Tim Connoley is a technical director of economics at RPS Group.
