Urgent Reform Required for Construction Crisis

Perth's property market has experienced significant gains since 2020, with a remarkable overall increase of 20-30% in housing prices. However, amidst this surge, the demand for established apartments has shown a decline, which can be attributed, in part, to the off-plan stamp duty concessions announced as part of COVID-19 stimulus measures. In this blog, we explore the impact of these concessions on the apartment market, extended building bonuses for consumers caught in the construction bottleneck, and potential solutions to address Perth's housing shortage.

In 2020, the Western Australian government introduced off-plan stamp duty concessions as part of its COVID-19 stimulus package. These concessions aimed to incentivise homebuyers to invest in off-plan apartments, which are properties purchased before construction is completed. The initial concessions, which were not means tested, led to a shift in buyer preference from established apartments to off-plan developments.

The original expiry date for these concessions was June 2021; however, they were extended to October 2023 and again to June 2025 - highlighting the government's ongoing commitment to stimulating the property market.

It must be noted that, due to these incentives, the apartment market in Perth has yet to witness positive price movement during this period of extended concessions. Paradoxically, Perth is currently facing the most significant shortage of accommodation ever recorded. With record demand not transferring into established apartments we believe this underscores the need to redirect the stimulus in a more productive manner.

Additionally, one must assess the impact of off-plan stamp duty concessions on the overall market. While the intention was to boost the construction of new apartments, they inadvertently diverted buyers from established apartments, exacerbating the accommodation shortage. A comprehensive review of the policy and potential modifications, such as means-testing the concessions or redirecting incentives towards established properties or new house and land packages for investment, could help rebalance the market and alleviate the crisis.

According to Australian Bureau of Statistics data collected between Quarter 1 2019 and Quarter 4 2022, the pace at which completions are occurring has slowed, whilst the number of under-construction dwellings has more than doubled:

Quarter 1 2019 - Quarter 4 2020

Average completed dwellings per quarter = 3,656

Average total dwellings under construction per quarter = 11,585

Quarter 1 2021 - Quarter 4 2022

Average completed dwellings per quarter = 3,486

Average total dwellings under construction per quarter = 23,822

One of the key obstacles to alleviating the accommodation crisis is the bottleneck in the construction pipeline. Builders face higher material and labour costs, leading to contract price overruns and potential insolvency. To mitigate this, the government might consider offering incentives to encourage builders to complete residential construction projects rather than abandoning them. Addressing the bottlenecks and ensuring the timely completion of projects can increase the supply of accommodation.

In summary, Perth's established property market has experienced significant gains in housing prices since 2020, but the same cannot be said for the apartment market. Initially introduced as part of COVID-19 stimulus measures, off-plan stamp duty concessions have contributed to declining demand for established apartments. Rather than simply extending building bonus grants to consumers caught in the construction bottleneck, the government should reassess the off-plan stamp duty concessions and implement targeted incentives for pipeline projects at a policy level.

For sales-related information, including an obligation-free appraisal of your property, contact us at hello@xceedre.com.au or (08) 9207 2088.