This article an update with some commentary on how the housing supply, construction and debt markets are evolving in WA. These are three metrics we are watching closely to establish timing of market entry for our next property developments in Perth. Not only are we watching the real data, but more importantly we are observing the rate of change in these sets as well, to uncover patterns that give as a string of indicators for probability and outcome forecasting. This has allowed us to make informed investment decisions, including making our first property acquisitions in almost 2 years based on where we feel we know the market is headed and our confidence in the strategies we have developed in house to capitalise on this knowledge.
Let’s take a closer look: what we are seeing now and in trend, is:
Continuing fall in vacancy rate for both rentals (less than 0.7%) and sales (under 2500 houses for sale in the entire Perth market).
This means both rents, and values, are only going to go up, with 8-10% lift by end of next year not improbable or ridiculous. As the year progresses people will continue to fall off the mortgage cliff, and some others will move out of their current rentals and accommodation into homes they started building in the 2020 covid grant spurred rush (at long last). This will provide some additional supply over the next 6 months, but there is such a large amount of latent demand that whatever avails will likely be snapped up quickly. Opportunities will present for those who are both in the know (sourcing ) and ready ( finance and SPV setup done) to snap up distressed property.
We are hovering around lowest construction commencement in history, driven by an all-time low in consumer confidence in the industry. Most of the builders who are insolvent , or who have been trading with a bleeding book, will hit the wall by the end of the year. The industry has a whole will then be reshuffled and we will know who is left. The veterans left will be well organised and adapted to operating in more challenging markets.
Low commencements, whilst poor for housing supply, will bring some balance and order back to labour markets in the next 12 months as trades bid on a work market offering 1/3rd the volume of jobs form the 2021 peak. We are also already seeing relief in some material markets, with steel and aluminium seeing first incremental falls in price as pressure on supply chains ease. This will provide both certainty and pressure reduction over the next 12 months, allowing contingency to fall in build pricing.
We will also likely see some semblance of competition return to labour markets, stabilising service offerings in price structures that have recently seen both builders and their consumers held to ransom over the last few years.
The cost of borrowing will likely still go up over the next year, but the rate of change has slowed significantly and will continue to do so.
This provides an ever growing certainty of what our borrowing climate will look like for some time and the pattern of how it will evolve. Yes its high (although that’s subjective, historically this is normal). What’s more important is we have some certainty and have project of stable metrics to work with. This has allowed to get creative and rational with our mix of debt and fiscal products in our development strategy formation, to bring certainty to that cost component and make sensible savings and decisions where possible.
Probably still a few more rate rises ahead, no more need to be alarmed though as the rate of change slows and regulators look to a mix of leavers to combat inflation, and fast.
Observation of emerging patterns in these 3 markets is what has allowed to take a stance that make acquisitions now and obtaining planning approvals together over the next 6-9 months is what will place us well to take advantage of the more stabilised and subdued construction climate that will likely exist 9-12 months from now. It’s like watching and then picking a good wave on the horizon in the surf.
This has required reflection, practice, and consideration of strategy, which has driven us to be creative and deviate away from the vanilla triplex and house behind house scenarios of the past. They are done and dusted, what is needed is new approaches to increase yield creatively and lean into affordable housing demand that meets the needs and desires of the consumers that make up the bulk of the market for the next few years.
If you’d like to learn more about what and how to develop in this climate, you can Download our EPIC Projects Brochure to discover more about our unique process, and then get In touch to discuss working with us. this is your invitation to reach out and work with us to enjoy an epic project of your own
If you are on the fence, consider what is certain:
Demand for housing is well below supply and it is not going away soon, and its over to us to bring that back to equilibrium. The government isn’t going to build a million houses. Working out how to get in and do your bit is paramount to your riding the wave of success over the next few years, and we can help you pick and ride your wave.