While the resource sector is revving up, the housing market in WA is slow to follow suit
After losing more than 2% in the previous quarter, house prices are back in the black, albeit with just a small gain in the three months ending March. The Residex data showed the median house price in Perth grew by 0.27% to $486,500 in the March quarter while unit values climbed by 1.75% to $399,500. Over the year, house prices increased by 5.23%, which is less than half the long-term annual average growth.
RP Data also recorded modest growth in median house and unit prices over the year to March 2010. House and unit values rose by the same amount of 7.9% in the 12 months ending March.
Property value growth during 2009 was significantly lower than the average growth rates recorded during the last five and 10 years throughout Perth, according to RP Data. Sales volumes in Perth recorded a greater slump than any other capital city during 2008; however, volumes have now rebounded strongly from their lows although they remain below the 10-year average.
“Perth clearly hit difficulties after the previous boom because prices just moved so rapidly,” says Paul Braddick, head of property and financial system research at ANZ. “They ran pretty quickly and they came towards the end with a thud. But all of the anecdotes would suggest that the general perception of the WA economy at the moment is back to boom time, and the outlook for commodity producers and company profits for the general economy and mining investment is pretty strong over the next few years.
“Like Queensland, Perth’s housing market slowed fairly significantly over the past 12–18 months but we expect that they will rebound particularly strongly because of those big mining projects, especially iron ore projects and LNG projects, that are going to see a lot money flowing into the WA economy over the next two to three years,” adds Braddick.
Economy is still in a downturn
Although the resource boom is revving up a head of steam once more, WA is still in the midst of a slowdown, says the Access Economics Business Outlook report.
“Rental vacancy rates have popped back towards 5%, population gains have slowed sharply even if they remain well above the rate of growth seen nationally, and employment growth is lagging its Australia-wide equivalent. WA partied too hard in recent years and the bust took its toll,” the report says.
This sentiment is further confirmed by the latest CommSec survey which reveals WA lost its top position of the previous ranking.
“The slippage of the Western Australian economy from top position can largely be attributed to last year’s US financial crisis,” explains Craig James, chief economist with CommSec. “The crisis led to slower activity in the resources sector, affecting unemployment, population growth and housing activity.”
WA saw its unemployment rate rise to 5%, the second highest in the whole of Australia and just behind NSW’s 5.5%.
Strong growth ahead
While WA’s downturn was dramatic, its upswing will be equally inspiring – and it has already begun, according to Access Economics. “It will soon be a case of same old same old, with population gains once more, employment gathering impressive pace, skill shortages garnering headlines and men in sharp suits talking bucks,” the report says.
Investment flows have also markedly shifted away from NSW and Victoria to the resource states, according to James.
“A decade ago, around a quarter of private investment occurred in WA and Queensland. Currently, the resource states account for around half of all new private investment in buildings and equipment.”
James noted that with the commencement of the Gorgon natural gas project, 66% of all engineering work currently underway is in WA, with 82% of all projects located in WA and Queensland. Together, WA and Queensland account for 36% of Australia’s economy compared to 28% in NSW. WA and Queensland also have just over 30% of Australia’s population and should pass NSW in terms of population share over the next few years.
“The overall investment pipeline is chockfull, with more than $200bn in projects ahead,” says the Access Economics report. “Although the greatest impact on growth and employment on the state will come as these massive megaprojects are built, they will steadily translate into great gains in export volumes in coming years. However, the rebound will be pretty good and the state looks set to go back carving out a steadily larger share of Australia’s population and economy. It is clear that 2011, and especially 2012 and 2013, will mark a return to the resource boom conditions which gripped the state as recently as mid-2008.”
As such Matthew Bell, economist with Australian Property Monitors, picks Perth and Brisbane as the next biggest performers.
“They’re still lagging behind Sydney and Melbourne in terms of price growth; they are a lot more exposed to the resources industry which will drive lots of income growth in the next few years.”