Developers sit tight despite strong boomer demand
LONDON: Steep building costs have put apartment projects in deep freeze even for baby boomers with cash.
Property developers in Perth say prohibitive construction costs and labour shortages mean new projects cannot get off the ground as the city’s housing crisis worsens.
With vacancy rates hovering at about 0.4 per cent, and an average of 220 people moving to Western Australia each day, many high-density developments have been approved, but developers are reluctant to push the button.
Urban Development Institute of Australia WA chief executive Tanya Steinbeck said more than a dozen apartment projects, representing about 2000 homes, had been given the green light but remained unavailable because of high construction costs.
Thousands of tradespeople abandoned Perth in the years before COVID-19 searching for better pay, Ms Steinbeck said, before federal and state building incentives “blew the doors off” demand and caught the building industry off guard.
“We were met with a huge spike in demand and no workforce. Then we started to see supply chain issues and the cost of materials go through the roof,” she said.
Construction timelines blew out from six months to three or four years. A huge surge in post-COVID migration has added pressure to the city’s housing crisis.
The industry now wants the state government to expand existing assistance packages to persuade developers to push ahead with building projects that would otherwise be unprofitable. The government’s $80 million Infrastructure Development Fund gives developers a rebate of $10,000 for each apartment in a multiple-dwelling complex in these areas.
“We really welcome the initiative, unfortunately, it’s just not enough,” Ms Steinbeck said, citing an average cost shortfall of about $18,000 per apartment. The government would unlock thousands of new homes if it bridged that gap, Ms Steinbeck said.
With Perth house prices tipped to increase by 16 per cent this year, the cost ratio will eventually balance out to a point where projects are profitable, but that could take up to 18 months, according to Celsius Property Group managing director Richard Pappas.
He said that if the government increased its contribution to $20,000, projects would get built faster and this would have a “ripple effect right through the housing continuum”.
Projects in Perth’s affluent west are currently profitable to pursue, but this is not the case in suburbs close to the CBD, such Victoria Park, that are ripe for high-density development.
Mr Pappas said a 104-apartment development that his firm had completed on behalf of The Fowler Group before the pandemic in Victoria Park would now cost twice as much to build.
With median housing values sitting at about $800,000 in the suburb, he said developers would wait for a big increase in values before embarking on another project in that area.
“The reality is that needs to go up another $100,000 at least,” he said.
Chamber of Commerce and Industry WA (CCIWA) chief economist Aaron Morey said Perth’s population was growing roughly 2 1/2 times faster than its historic average and housing completion rates were far from keeping pace, despite plenty of development approvals.
He said it was a resourcing constraint issue “in terms of getting access to the workers required”.
In a budget submission to the WA government, CCIWA said the state needed to attract more than 50,000 construction workers to deal with the current shortfall.
Perth’s population boom isn’t expected to slow either – CCIWA points to the multibillion-dollar AUKUS submarine pact with the United States that will result in another influx into the city.
