Western Australia's housing market faces critical challenges amid economic growth

Long seen as predominantly a mining town, Western Australia has experienced significant shifts in its economic landscape over the past decade. 

Efforts to diversify beyond the mining sector have indeed paid off, with areas such as education, technology, and tourism experiencing strong growth. This has subsequently transformed the region, attracting a broader range of industries and creating new opportunities for residents and businesses alike.

Yet the housing and infrastructure to support such growth has failed to keep pace. Now in 2024, Perth's housing market faces significant challenges due to dwindling property availability and increasing demand. 

According to REIWA data, the number of properties for sale in February 2024 had decreased by 45% compared to the same time in 2023. With only 3,846 listings in Perth, the scarcity drove the median house price up from $555,000 to $650,000 in a very short period. Mirroring this trend, the rental market also became extremely tight – pushing median rental prices from $560 to $650 per week and leading to a critically low vacancy rate of 0.7%. 

By June 2024 the situation had worsened, with factors such as low unemployment figures and high rates of migration likely playing significant roles. Both listings and average time to sell continue to reach record lows, as does the availability of rental properties. 

While there is talk that unprecedented levels of investor lending will ease the rental crisis, this is unlikely to have a positive effect on housing affordability and availability. In fact, the reality that investor lending currently only constitutes 35% of overall lending for homes in WA shows demand is coming from homebuyers themselves and certainly suggests that this is not a housing bubble. 

Potential solutions requiring government and industry

Some of the government efforts to address the crisis to date have included a commitment to invest $400 million in social and affordable housing, additional funds for maintenance and homelessness services, and a modest rental relief scheme.

But immediate relief is limited and high demand continues to outpace supply, keeping prices elevated and market conditions tight. With strong indications that the crisis is not merely a bubble, and has serious long-term repercussions for the future of the state, the implementation of practical and robust strategies will be critical. 

That being said, it’s quite clear that these strategies will have to be multi-faceted – involving strong collaboration between government and industry to provide sustainable results across both the short and long term. 

Potential short-term solutions could include expedited land releases and approval processes to allow for the rapid construction of new homes. Direct government intervention in building affordable housing units could also help to meet more immediate demand, while first home buyer and shared ownership incentives would help to reduce cost barriers.

For the rental market, expanded rental assistance programs and tax incentives for landlords could go a long way towards easing the strain. 
In the mid to long term, the construction sector will play a pivotal role in aiding Western Australia’s recovery from the under-supply of housing. Possible solutions could include:

• public-private partnerships with developers
• smarter urban planning to maximise land use
• zoning reforms
• government subsidies and grants
• training programs and incentives to address construction skills shortages

Damian Collins, Chairman of Westbridge Funds Management, says Western Australia’s thriving economy has created a complex situation. Skilled migration is needed to fill crucial job vacancies and fuel further growth, but this necessary influx of workers is simultaneously exacerbating the housing shortage.

“The key to alleviating this pressure lies in significantly boosting our housing supply. However, we're facing a major obstacle: a critical shortage of construction workers. Without sufficient skilled labour, we're unable to build new homes at the pace required to meet the rising demand. It's a multifaceted issue that calls for immediate and comprehensive action.

“We need to prioritise bringing in skilled tradespersons who can contribute directly to our housing construction efforts. At the same time, we must invest in training programs to upskill our local workforce. This dual approach will help us build the capacity we need to catch up with housing demand.

“We also need to look at ways to fast-track building approvals, adopt more efficient construction methods, and remove unnecessary red tape. Every day counts when you're trying to close a supply gap of this magnitude.”
Peter Packer, Co-Founding Director of Dorado Property, suggests that an effective way to tackle the housing affordability crisis in Perth is to reduce the size of new homes.

“Smaller homes are not only more affordable but also more sustainable, as they require fewer resources to build and maintain. This approach could make housing more accessible to a broader population, addressing both economic and environmental concerns.

“There is a growing trend towards smaller homes in urban areas, driven by changing demographics and lifestyle preferences. Ideally, policymakers should encourage the development of these smaller homes to better meet the needs of modern families and individuals. By doing so, they can help alleviate the pressure on the housing market and make homeownership a more attainable goal for many.

“Additionally, Perth needs to see a culture shift away from freestanding houses towards apartment living. Standardising building designs could significantly reduce construction costs, with regulatory flexibility key to facilitating this standardisation, which would in turn expedite the housing approval process.”

Laying the groundwork for a bright future

The collaboration between government, private sector, and community stakeholders will be vital to ensure the state and its cities remain vibrant and accessible. So long as solutions are well-rounded and feasible, it is possible for Western Australia to recover from the current crisis while laying the groundwork for a more stable and affordable housing market in the future.

RSM’s specialist property and construction team is committed to staying on top of industry trends so we can provide our clients with relevant, timely and strategic advice. This includes industry updates, presentations, and networking events to share insights and foster unity between valuable stakeholders in the property and construction industry. 

FOR MORE INFORMATION

To learn more, or for a confidential discussion with a specialist property and construction advisor, please contact AJ Neo on (08) 9261 9167 or reach out to your local RSM office.