Economic strength continues to drive WA housing demand

Western Australia was recently recognised as the top-performing economy in the nation for the second time in a decade (and second consecutive year), according to the latest CommSec State of the States report.

The report highlights WA’s strong performance across a range of economic indicators, including retail spending, unemployment rates, population growth, housing finance and dwelling starts.

This success is bolstered by the state’s impressive job market, which has seen unemployment rates 35 per cent below the decade average. The state also leads in population growth, both in relative and absolute terms, contributing to its overall economic dynamism.

This positive economic climate is fuelling strong demand in various sectors, particularly the housing market.

Given the state’s ongoing growth, demand for new housing remains strong, particularly in greenfield areas where developers have been able to lift production volumes and deliver much needed supply to the market.

However, despite best efforts to deliver supply to the market at speed, WA’s housing production has not been able to keep pace with demand.

The state’s total dwelling completions for the 2023-2024 financial year are expected to fall short of the National Housing Accord’s target of 26,000 new homes, with just 18,090 expected to be completed.

Multi-unit sector remains tight

While greenfield lot supply has ramped up in recent years, the multi-unit sector remains weak, making it harder to meet the lofty National Housing Accord target.

In the 2023-2024 financial year, just 1,633 units were completed, which is 60 per cent below the long-term average. This number also represents an 80 per cent decrease from the peak of unit completions in 2017.

Units now account for just 9 per cent of total housing completions, the lowest proportion in more than two decades. Historically, multi-unit dwellings have made up around 20 per cent of completions.

The decline in multi-unit housing production is largely attributed to two main factors: high construction costs and a shortage of builders.

The surge in construction costs during the Covid pandemic, along with other factors, such as lengthy approvals processes and high levels of government taxes and charges, has made it challenging for developers to make multi-unit projects financially viable.

Additionally, a lack of available builders has limited the state’s capacity to deliver new housing, especially in the multi-unit space.

Despite these challenges, there are signs of improvement. Approvals for semi-detached homes and apartments surged by 186 per cent in the three months to November 2024, compared to the same period the previous year.

Additionally, multi-unit commencements increased by 81 per cent during the September quarter.  These are positive early signs for the sector and we hope to see this trend continue.

WA house prices on the rise

While it is not necessarily good news for new home buyers in the short term, one factor that is helping to drive renewed developer interest in multi-unit projects, is a significant increase in house prices in WA.

The median price for a new house in WA rose by 24 per cent over the 12 months leading up to October 2024. This price growth has improved the financial feasibility of built form projects, making it more attractive for developers to invest.

This upward price trend should have a longer term benefit on housing supply and assist with more moderate increases in house prices as the supply v demand equation starts to balance out.

Coupled with home value increases, inflation is easing and cost-of-living pressures are slightly improving, providing some hope that the multi-unit sector will recover further over the next year.

This would help WA move closer to the National Housing Accord’s target and better meet the housing needs of its growing population.

Housing on political agenda

While the housing market in WA remains strong, the state faces ongoing challenges in ensuring sufficient supply to meet demand.

With economic conditions improving and signs of a recovery in the multi-unit sector, there are positive indicators for continued growth in housing production over the next few years.

As we head toward a State Election on 8 March, and a Federal Election not far behind, UDIA WA will be keeping the pressure on both levels of government to continue to keep housing policy at the top of the political agenda.

Our state election platform is focused on how government can continue to prioritise measures to leverage industry to deliver the homes we need, faster.  Our recommendations are based around three key asks:

• make it easier to create the homes we need
• help keep the cost of homes down
• plan for our housing needs, now and for our future.