Perth apartment prices continue to rise as supply dwindles

Tight supply combined with escalating demand for apartments across Perth is creating ideal conditions for continued growth in apartment prices.

Australia’s apartment sector has faced a number of unforeseen challenges in recent years.

Labor shortages, global instability, and supply chain disruptions – largely a result of the fallout from the COVID-19 pandemic – have resulted in a significant increase to house construction prices, in turn hampering the progress of many large-scale projects across the country.

The Property Council of Australia conducted a survey in January 2022 which revealed that approximately 35% of WA apartment projects with development approvals had been put on hold.

This figure was later revised closer to 50% in August 2022, equating to roughly 6,000 units.

Apartment supply hitting record lows

Fast-forward to early 2023, however, and dwindling supply levels combined with an anticipated surge in demand are driving a potential turnaround for WA apartment developers.

The chart below shows at a glance just how tight supply has become for the townhouse and apartment market in Western Australia over recent years.

Just 241 apartments/townhouses were completed in the State during the September 2022 quarter. It’s the lowest amount recorded since 1973, and well below the 42-year average of 1,033 new constructions (Australian Bureau of Statistics).

Source: ABS

Looking towards apartment approvals – the leading indicator of future supply – ABS figures show that approvals have been in steady decline for over seven years.

Only 1,754 apartments were approved in the 12 months to January 2023 – a small percentage of the 5,732 apartment approvals recorded at their peak in the 12 months to May 2015.

Source: ABS

Demand on the rise

While supply is dwindling, indicators suggest a widespread increase in demand is also set to come into play.

Philip Anderson, our Head of Developments at Westbridge Funds Management, explains, “While we’ve continued to experience robust demand for high-end owner-occupied product in recent years from local downsizers, WA’s population is now ramping up, with the State punching above its weight for population growth.”

Indeed, the 12 months to 30 September 2022 saw an additional 50,000 residents settle in WA (ABS).

The uptick is being driven by WA’s strong labour market, affordable housing and quality lifestyle, with the State Government’s international recruitment drive expected to support further growth in the years to come.

Of course, all these arrivals will need somewhere to live.

Philip explains, “This strong demand pipeline, combined with record low levels of stock, is going to put further pressure on apartment values, which will start to support a return to feasibility for many projects that have been put on hold.”

“At the same time, construction cost escalation – the predominant factor currently holding back project progression – is starting to flatten,” he adds.

House construction input prices rose by 2.5% in the December 2022 quarter across Perth. While still a moderate increase, this represents a significant slowdown from the peak growth rate of 4.8% recorded during the March 2022 quarter (ABS).

“A continued slowdown in price escalation will help to further support the viability of apartment projects which is great news for us as developers, and importantly a step in the right direction in addressing the State’s anticipated supply deficit,” Philip concludes.

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