Knowledge Hub

Source: PIPA Adviser Magazine

Author: Dr. Kevin Hoang Senior Economist,  Head of Property Research, inSynergy

Perth has emerged as one of the best-performing property markets in Australia, showing all the signs of a hot market.

Prices have increased by 22% in the past 12 months and 60% over the past four years. Days on the market have reached a historic low of eight days, and the vacancy rate has dropped to 0.5%.

Most notably, the market is moving so fast that almost all sales are advertised without a price guide, resulting in sale prices tens of thousands above the reserve. This is likely driven by a fear of missing out (FOMO) in a bid to capitalise on further price growth.

The main drivers of the current surge are supply constraints, affordability, and a strong economy.

In the last 12 months, new dwelling completions were 15,500, while the population increased by 94,000, resulting in severe under-supply conditions with six new arrivals per new dwelling built.

If an average household size of 2.5 is used, then almost 20,000 dwellings are under-supplied in the city over the past 12 months. Under the current higher capital and labour costs, it would take years for supply to catch up with growing demand, fuelling further pressure on housing prices.

Despite prices having increased by 60% over the past four years, the current house prices of $800,000 in Perth remain highly affordable compared to other east coast cities, such as $1.6 million in Sydney.

From a long-term perspective, starting at $96,000 in 1990, Perth’s house price has increased by 815%, compared to 1009% in Sydney, 552% in Melbourne, 951% in Brisbane, 783% in Adelaide, 892% in Canberra, 921% in Hobart, and 700% in Darwin. Therefore, Perth’s accumulated price growth is broadly aligned with other capital cities.

Rich in natural resources, with $230 billion in mineral and resource exports per year, a GDP per capita of $157,000 per year (against the national average of $90,000), and large infrastructure projects in the pipeline, including Metronet worth $12 billion and the AUKUS site expansion project worth $8 billion, Perth has all the fundamentals for a thriving economy in the years ahead.

Where will we go from here?

While prices are higher than a few years ago, the vacancy rate is low, the population is projected to increase, and most importantly, the prices remain affordable for a capital city. Therefore, the best-predicted trajectory is that Perth’s price growth will likely continue to rise in the next few years, with stronger growth rates in the low to middle price range and lower growth rates in the top end of the market.