WA new building approvals decline sharply
There was very little change again this week for Perth’s real estate sales and listings. Sales increased marginally, recording 944 transactions, while listings fell marginally with 8,406 properties for sale. These figures have remained remarkedly consistent even though two significant events occurred, the opening of the WA borders back in March this year and the continuous interest rate rise since May. The following two charts illustrate this consistency.
However, despite the strong levels of housing demand, according to CoreLogic, Perth’s property prices remained flat this week. With prices declining across the country, this is a good result. The following chart illustrates how rising interest rates have flattened the property price growth curve.
Nationally, August witnessed a 1.6% decline in property prices, the largest monthly fall in 40 years. Prices fell in every capital city, with Darwin the only city to record a positive gain in August. Perth performed comparatively well as the following table shows a 0.2% decline for the month but a 0.4% increase for the quarter. Sydney was the worst-performing city, with a 2.3% fall for the month and a 5.9% fall for the quarter.
Although Peth prices have flattened and will likely fall until interest rates plateau, the lack of rental properties is probably a more significant long-term concern for the housing market. This week, rental listings fell by 7%, with Perth recording 1,907 properties for rent. The following chart illustrates the decline in rental listings over the past four months.
The lack of investment properties for rent is likely to worsen as the Federal Government increases the cap on migration from 160,000 to 200,000 to help combat the shortage of workers in the economy, along with the continuing decline in new building approvals. The following table reveals the sharp monthly decline in WA’s new building approvals, particularly units traditionally associated with property investment. The 8.7% decline in private housing and 36.9% in unit approvals represented the most significant falls nationwide and will continue to put downward pressure on vacancy rates and increase rents.
Last week we reported WA’s strong employment figures; however, the ABS reported weak wage growth in the face of high inflation. Currently, wages grow at 2.6% annually while inflation is 6.1%. If wages are increasing less than prices are increasing, real wages decrease. While the Federal Government holds the national Jobs and Skills Summit to address labour shortage issues and stagnant wage growth, SEEK Employment released a report showing that advertised wages have increased by 4.1% annually.
So there is some evidence of wage growth, but it is still well below inflation. This is a problem for workers, but the RBA will not be overly unhappy with the result because a decrease in real wages reduces consumption (demand), reducing prices (inflation). One of the main reasons for the RBA to raise interest rates is that it decreases household consumption and business investment, both major contributors to inflation. However, as we have recently reported, reducing demand does not impact price increases due to supply issues.