October 31, 2019 by Dymphna

WA Govt kicks own goal on property

The WA government has its heart in the right spot. But this is a miss.

I’ve been watching the Perth Market for a while now. It’s struggled and is still struggling. Last count it was down over 20% from its last peak.

That kind of fall can really put your stomach in your throat.

But the green shoots of a recovery have been emerging. Prices and rents seemed to be stabilising, and the market was finding a floor.

Now, I’m not so sure. And that’s thanks to an own-goal the WA Government kicked last week.

The WA Government decided they’d be giving away stamp duty rebates of up to $50,000 for buyers of new apartments. From Perth Now:

Apartment and unit buyers will get a rebate worth up to $50,000 on eligible properties under a two-year scheme announced by the State Government today…

The rebate, revealed by Premier Mark McGowan this morning, will be available for two years to any purchaser who signs a pre-construction contract to purchase a new residential unit or apartment in a multi-tiered development.

There will be no cap on the purchase price and multiple rebates will be available to the same applicant.

Premier Mark McGowan said the initiative would drive investment into the residential construction industry and support the property sector…

“It’s limited to two years and then we’ll see how it’s tracking. It’s designed to get development happening in WA right now.”

So look, on one level this is good policy. It’s supports construction, which supports employment, which supports the economy and the property market. That’s a good thing.

But they’re creating that construction employment by driving the construction of new apartments. That means, they are adding to supply.

Now remember that prices are a function of supply and demand, and since demand is just doing its own thing, this policy will increase supply, and therefore put downward pressure on prices.

That’s not great.

And remember the Perth market was looking a little glutty already. That’s why prices have fallen as far as they have.

So the prescription here is for more of the very thing that caused the problem.

That’s not going to help.

And look, it’s great that it increases construction employment. It’s great that it helps the economy.

But you could have supported those things with measures that didn’t put more pressure on the property market.

I mean, if you’ve got cash to burn, put it into real infrastructure. Build roads and things that increase the value of areas within the state.

That would create employment, but it would also bolster property prices.

And I say that because falling property prices are a problem for everyone. We’ve got a lot of wealth tied up in our houses. When property prices fall, consumption generally falls with it, and that hurts the economy.

So I don’t know about this one. I don’t think it’s great policy. I actually think it could be a bit of an own-goal.

Need to try harder, team.