LF Economics has released a new report entitled “Perth Smashed Avocado Toast Report: An Illustrated Guide to the Latest Trends in the Perth Housing Market“, which argues that Perth’s housing market has entered the early stages of a long-term downturn on the back of: 1) the unexpected mining investment downturn; 2) plummeting population growth; and 3) the overall weakening state economy:
The mining construction boom proved a magnet to many, with WA experiencing the greatest population growth of all states and territories over the boom. Just as citizens and immigrants flooded into WA, the reverse is now taking place. Immigration has sharply declined and there is now a net interstate outflow…
Given the economic conditions, WA will likely experience negative net population growth in a couple of years’ time. The effect on the housing market is entirely predictable…
It is remarkable that a small construction boom lifted off (probably stimulated by the housing price growth in 2013) while population growth collapsed. Large dwelling surpluses will continue into the near future, and will likely increase as population growth continues to decline.
…large and persistent dwelling surpluses will ensure future negative rent growth. Combined with small rises in the nominal mortgage interest rate, LF Economics sees property investors hit hard from both ends of the balance sheet.
Gross yields have been compressing over the last couple of years, but not for the usual reason of prices rising faster than rents. Perth is producing the opposite: rents are falling faster than prices. This means the property market is unattractive to both speculative and value investors…
Market power has swung decisively from investors to tenants… The fall in housing prices is also good news for aspiring first home buyers, as is the downturn in sales volumes. FHBs now have superior bargaining power with increasingly desperate vendors…
[But] there are countervailing forces FHBs must contend with. Employment is increasingly precarious… Full-time jobs continue to disappear… WA’s domestic economy as indicated by real SFD (state final demand or GSP minus net exports) is a disaster zone…
The household sector has become so weak that the annual change in aggregate nominal household income has been negative in recent quarters, worse than during the early 1990s recession. The trend is clear: as both population and nominal wage growth plummets to record lows, household income will continue to weaken…
Leith van Onselen is Chief Economist at the MB Fund and MB Super. He is also a co-founder of MacroBusiness.
Leith has previously worked at the Australian Treasury, Victorian Treasury and Goldman Sachs.
