WA border reopening to give Perth real estate market another boost

With Western Australia’s border reopening expected to push house prices up further in 2022, Oscar Burke and Annabelle Nguyen feel they bought at the right time. 

The engaged couple purchased a three-bedroom property in Bicton, near Fremantle, in August. 

The riverside suburb ranked number one out of the top 10 growth suburbs in Western Australia in 2021 with a median sale price of $1.28 million, a 38 per cent jump from the previous year. 

CoreLogic’s latest data shows home values in WA rose by 13.1 per cent in 2021 after rising 0.4 per cent in December to a median price of $520,000.

[Perth’s top growth suburbs table]

“It was the right time to buy for us; I think if we had waited any longer we might not be in Bicton, we might have had to live further out,” Mr Burke said.

“It’s not a great trend that many couples can’t really afford to get into these areas, we feel really lucky to have done so. 

“It worries me that the prices keep going up because I really want to see younger couples being able to come into these established suburbs.

“We lucked out, it’s a hidden gem and something we could afford while ticking all the boxes.

“It’s a family-friendly area near the river and is close to a good local primary school, lots of beautiful parklands and restaurants and it’s got a great culture and both our commute times to work are under 20 minutes.”

Real estate agent and Bicton local Todd Grierson said low-interest rates had helped families and those wanting to upscale to afford property in the area. 

“It’s become a lifestyle choice with its great access to the river, Fremantle, beaches, great schooling and it’s safe and clean.”

Prices to rise further when border falls

Western Australia’s border reopening will set the stage for another year of solid growth in house prices in 2022.

The Real Estate Institute of WA (REIWA) predicts house prices will jump 10 per cent this year as the state finally lowers the drawbridge to interstate and overseas migrants on February 5. 

REIWA president Damian Collins said increased demand from new arrivals and low stock levels would place upward pressure on prices, particularly in the second half of the year.

“WA has always been a state that has been driven by jobs and a strong economy and that’s what drives the population growth,” he said.

“I expect once the borders come down, companies are certainly going to start ramping up their recruitment drives, both on the east coast and internationally.

“Now it will take some time to get those people recruited and on board, but I expect in the second half of 2022, we will certainly start to see a pick-up in population growth into Western Australia.”

Hard border stymied WA market 

CoreLogic Research Director Tim Lawless said tight border controls prevented WA from achieving the gains seen in other states in 2022, with house prices rising 22.1 per cent nationally  – the sharpest jump in three decades. 

Hobart led the way out of the capital cities with an annual growth of 28.1 per cent, followed by Brisbane (27.4 per cent), Sydney (25.3 per cent), Canberra (24.9 per cent), Adelaide (23.2 per cent), Melbourne (15.1 per cent), Darwin (14.7 per cent) and Perth coming in last at 13.1 per cent.  

Mr Lawless agreed the border reopening would most likely push prices up as a result of stronger demand from interstate arrivals. 

“Open borders would likely see a rebound in housing demand across WA, the extent to which depends on how the WA economy and labour markets are travelling at the time,” he said.

“Interstate migration was on a strong upwards trajectory prior to border closures and it’s likely this trend will resume once borders are opened.”

WA most affordable state in the country

Despite the strong price growth in 2021, Mr Collins said WA is still the most affordable state in the nation, with prices remaining 3.4 per cent, or roughly $18,000, below their 2014 peak. 

Perth’s median house value of $520,000 is the second-lowest in the country, behind $498,168 in Darwin. 

As of June 2021, Perth’s median dwelling value was tracking six times higher than household incomes, compared with the capital city average of eight.

Mr Collins said the relative affordability of WA, coupled with a tightening labour market, would support further price growth. 

Interest rate rise a matter of when, not if

Most analysts predict the housing market to cool in 2023 when the Reserve Bank of Australia is expected to increase interest rates to keep a lid on inflation. 

“Interest rates are going up, there’s no doubt about that, it’s just a matter of when, and by how much,” Mr Collins said. 

“My thoughts on this is, given where the Sydney and Melbourne property markets are in particular and the very high levels of debt people have there, it wouldn’t take much of an interest rate rise to not just affect the property market, but to curtail people’s spending.

“And that’s obviously what the Reserve Bank is trying to do with interest rate policy, is make sure inflation doesn’t rear its ugly head.”

Mr Collins did not anticipate the cash rate would be hiked up more than 1 cent, due to the high mortgages in Sydney and Melbourne.

“We certainly don’t expect to see mortgages at 5 or 6 per cent…and I don’t expect we’re likely to see an increase until, at best case later in 2022, but it’s more likely to be in 2023.”

He said this may cause a slowdown in price growth, but he did not anticipate prices to go backwards. 

Mr Lawless said the timing of a lift in the cash rate remained uncertain and dependant on labour markets, wages and, ultimately, inflation. 

“The RBA remains of the view that conditions for a lift in the cash rate won’t be met until 2023, however financial markets and a growing chorus of economists are factoring in an earlier rise in interest rates due to a more rapid than forecast rise in inflation,” he said.

“If the cash rate does lift earlier than expected, it implies a stronger than forecast economic recovery, which is good news, but also has a negative implication for housing market activity.”

What else could push prices down?

Mr Lawless said tighter lending rules could also place downward pressure on house prices, as it did in 2014 and 2017. 

“Factors that could trigger another round of credit tightening include a further rise in household debt levels, a rate of housing credit growth that remains persistently above income growth or a sustained period where riskier types of home lending becomes evident,” he said. 

In October, the Australian Prudential Regulation Authority (APRA) lifted the interest rate serviceability buffer for mortgages.

Some analysts expect APRA to intervene again next year by setting a limit on loan-to-income ratios.

The obvious way to push house prices down is to build more of them, but that is easier said than done.

“We will start to see more houses completed in 2022, from all those grants that were given 18 months ago, but it’s not easy for that sector to ramp back up after being down for so long,” Mr Collins said

“The construction industry is very much constrained by a shortage of labour so it’s going to be hard to get a lot of properties to market.

“Construction costs have gone up 20 to 30 per cent, so people are less inclined to build.”

More pain ahead for WA renters

The annual rate of rental growth across Perth peaked at 16.9 per cent over the 12 months ending in June, before it eased back to 11.5 per cent by the end of 2021.

REIWA predicts rent prices to increase another 10 to 15 per cent in 2022 for the same reason house prices are set to go up – there is not enough stock to meet demand. 

“While rental growth may be less than what it was at the recent peak, it’s likely Perth rents will continue to rise faster than the national average due to increased demand as borders open up against a relatively tight level of available rental supply,” Mr Lawless said. 

Mr Collins agreed, saying arrivals from interstate and overseas would quickly soak up the 2,000 rentals currently on the market.

“The best thing we can do is encourage investment back into the market [from] the private sector, which provides 85-plus per cent of the housing.”

Mr Collins was concerned about proposed “pro-tenant” changes to the Residential Tenancies Act, which he said could remove owners’ rights to end leases at the end of their term. 

“It is critical that the WA Government does not make major changes to the Act that will discourage property investment in WA at a time when we desperately need an influx of rental stock,” he said.

“We have the lowest vacancy rate in 40 years.

“The last thing you want to do is bring in changes that are going to dissuade property investors from investing in the market or even worse, selling what they’ve got already because all that will do is make a dire situation far worse.”

He also called for the development approvals process to be streamlined as much as possible, and more flexibility around re-zonings, to aid new builds in order to meet projected population growth. 

Outer suburbs to see price gains in 2022

Mr Collins said price growth in 2021 was driven by the “top end” of Perth’s real estate market, in the western suburbs and in riverside locations.

“I think we’re going to certainly see more of a bottom-up approach this year, with growth in those suburbs that were oversupplied for a long time, where prices went down significantly,” he said.

While REIWA does not provide price predictions for individual suburbs, he said this would apply to outer suburban areas where houses are priced in the $350,000 to $400,000 bracket.

Market conditions across regional WA are also expected to remain strong in 2022, with lifestyle predicted to be a key growth driver.

“Port Hedland was the top-performing regional centre in 2021 for price growth, largely fuelled by the resurgent mining industry,” Mr Collins said.

“In 2022 we anticipate lifestyle to be a driving factor behind where people choose to live, especially if there are local employment opportunities in regional areas.”

Video: Low interest rates encouraging demand for properties (Sky News Australia)