Celsius Land – February 2022 Update
For the past 12 months I have written many articles on the pretext that Western Australian borders will open within a reasonable period of time. It has taken longer than I expected, but we are finally here with the barriers set to be removed on 3 March.
So what does this mean for land development? To answer that I need to go back in time, to Western Australia’s severe downturn in the land and new home industry from 2014 to 2019.
When the impacts from the pandemic commenced in March 2020 the Western Australian land development and building industry was in the very early stages of an overdue recovery, having experienced the best monthly land sales in 3 years, albeit off a very low base. Due to the lead times associated with construction my view is that the state was already facing a housing crisis in March 2020 when the vacancy rate had dropped to 1.9% (from a high of 5.5% in 2016) with interstate migration having turned positive (and accelerating) and very few dwellings being built. In my view the housing crisis is likely to have been worse than it is now, as many more people would have entered the state in 2020 and 2021 due to improvements in Western Australia’s economy. Due to the severe downturn in the land development and housing industry from 2014 to 2019 many skilled workers were made redundant and have not returned, leaving the industry with a much smaller capacity to build homes.
After a brief hiatus due to shutdowns in March 2020, the market was then turbo-charged in June 2020 with the introduction of home building grants to stimulate the economy, resulting in an oversupply of land stock from the prior 5 year downturn quickly being snapped up. And it has been mayhem since then, with a strong appetite for Western Australians to purchase house and land packages, with a very small labour force available to deliver them, and very limited capacity to grow due to border restrictions.
The short term impacts of the border opening on 3 March are concerning, and I expect increased homelessness as the state has very little capacity to accommodate the demand on housing. Our current vacancy rate of 0.6% is the lowest it has been since 2012. Whilst it is unknown how many future arrivals have already purchased or rented a home, my expectation is that the 2,321 homes currently available for rent in Perth simply will not be enough to house the expected influx of people.
My expectation over the medium term is that opening the borders will result in our labour force being built up again to enable the delivery of land and homes, however this will take some time. With the benefit of hindsight, what is happening now reinforces the need for government to act early when our economy needs stimulus (or slowing), such as in 2018 when the vacancy rate was falling and very few homes were being built.
So the pandemic roller coaster continues and, like everyone, I will be hanging on for the ride.
Regards,
Brenton Downing