WA likely to face construction crunch

By Gerv Tacadena | 18 May 2020

Western Australia’s property market could face a tough year ahead as the impacts of the COVID-19 outbreak on home building start to bite, according to the latest study by the Housing Industry Association (HIA).

New-home sales in the state have already fallen by 25.2% since the COVID-19 restrictions were put in place in March. At the same time, 30% of existing projects have been cancelled or put on hold. This was four times the normal cancellation rate of 7%.

"Overall, this is a 50% contraction in WA's home building pipeline as a result of COVID-19. A similar situation is playing out across the country, but WA will be first to feel the brunt of the home building downturn because the past five years were among the worst on record for us," said Cath Hart, executive director for WA at HIA.

Figures from HIA shows that the project pipeline in the state before the restrictions was just worth 13 weeks, significantly lower than the six months in other states.

"If this continues, we expect a reduction in on-site construction work will start to grip WA from July — this will bring a new wave of job losses and reductions in hours," Hart said.

Also read: Prices Could Rise As Vacancies Remain Low

The Housing Industry Forecasting Group had reduced its forecast for new dwelling commencements in WA for 2019-20 by 19% from 15,500 to 12,500, the lowest ever level, adjusting for population.

"This downturn will hurt businesses and workers in the home-building supply chain over at least the next 12 months. Unfortunately, many in our industry are not eligible for the JobKeeper safety net because of the way state governments regulate home-building progress payments," Hart said.

An overall downturn in home building is expected across Australia over the second half of the year, as the cancellation rate exceeds 30%. This was significantly higher than the 17% peak recorded during the global financial crisis.

"Unlike the re-opening of other sectors, the lead time for the home-building pipeline is six to nine months, so even if the economy restarts on 1 July the supply of work in residential building will continue to decline into 2021," said Tim Reardon, chief economist at HIA.

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