The Smartline Report – August Edition

The month in review: Perth

By Herron Todd White
August 2015

In its latest forecast, Australian Construction Industry Forum (ACIF) says that after surging from $22.78 billion in 2005/06 to a peak of $54.968 billion last financial year, the annual value of work done on building and engineering sector construction projects throughout Western Australia is set to contract by 8.2% to $59.664 billion in 2014/15 and to drop to less than $40 billion by 2017/18.

Reasons for this are not hard to understand. With mammoth projects like Chevron’s Gorgon and Wheatstone now around 80% and almost half complete respectively and little in the way of new developments coming through, the massive pipeline of investment which boosted resource sector construction work over recent years is now receding.

The impact of this will feed into other parts of the economy and construction sector as slowing tenant demand from resource companies impact requirements for commercial office space and a slowing rate of population growth impacts demand for new housing. These forecasts come despite the fact that the state’s Chamber of Commerce and Industry expects the overall rate of economic growth to edge up slightly to around 4% in the current financial year.

Following a significant downturn in 2011/12, housing starts within Western Australia surged by more than 63% to come in at ten year highs of 29,050 in 2013/14 amid a combination of low interest rates, reasonable levels of pent-up demand and the highest level of population growth of any state in the country.

Going forward, the Housing Industry Association (HIA) expects another strong year in 2014/15 as an easing in commencements of new detached housing is partly offset by a peaking in multi-residential starts. The HIA says however, that the number of commencements will subsequently fall to 22,740 over the years to 2017/18 as activity on multiresidential construction drops back. An anticipated slowing in population growth as the mining boom fades may contribute to this, so might a possible monetary policy tightening cycle toward the end of next year.

In the short run, approval data is promising: in the first ten months of this year, the number of new houses and apartments approved for construction was up by almost 15% compared with the same period in 2013.

Meanwhile, in housing renovations, the dollar value of investment will peak this year at a red hot $7.371 billion before dropping back to just over $6 billion by 2017/18, according to the HIA.

Perhaps surprisingly, given expectations regarding levels of activity, quantity surveying firm WT Partnerships expects a modest level of upward pressure on construction tender prices to intensify slightly going forward, with prices to rise by 2.8% in 2015 followed by 3% in the two years thereon after.

In its most recent report, WT said pricing pressure across most trades remained relatively subdued, tier one contractors were finding costs increasing in bricklaying and formwork trades as a result of a shortage of skilled labour and tier two contractors were seeing increases in ceiling and partition as well as demolition subcontractor costs.

Average construction costs at the low end of the market (full brick construction of a 90 square metre to 110 square metre dwelling) sit between $915 to $985 per square metre, in comparison to a medium standard of finish for a full brick dwelling of between 120 and 140 square metres which shows a range between $990 to $1,070 per square metre.

At the top end, current construction cost estimates are between $2,300 to $2,480 per square metre for a full brick constructed house. At the prestige end of the scale, we see rates climbing to be above $3,000 per square metre.

Please note that information in this publication is subject to change without notice. Smartline assumes no responsibility for any errors, omissions or mistakes in this document. © Smartline Home Loans P/L 1999 – 2015. Australian Credit Licence Number 385325


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