A recent report highlighted the challenges facing developers in the current housing market, particularly in relation to the construction of smaller, more affordable apartments in less premium areas. While the cost of building these developments may not be significantly lower than in more expensive locations, the price that buyers are willing to pay is substantially less. This, in turn, makes it difficult for developers to proceed with these projects in the current economic environment.
The report dispelled the common misconception that developers are driven by greed when setting prices for their developments. It pointed out that there are minimum thresholds required to secure project finance and manage risks, which are necessary for the viability of a project. The rising and highly volatile construction costs, attributed to labour shortages and competition for labour from other sectors such as the government and mining industries, were identified as major challenges for developers.
According to the report, post-COVID construction costs have increased by 30 per cent nationally, with even higher rises reported in Western Australia. The state has seen a significant increase in infrastructure spending over the past five years, leading to a surge in construction costs. Developers have reported that construction estimates are now nearly double the cost of similar projects five years ago, with further increases expected as new national construction codes and bargaining agreements come into effect.
As households continue to face financial challenges and developers find themselves in “holding patterns,” the report highlighted the significant increase in state-based property tax revenue over the past five years, totaling $4.5 billion. The report argued that this revenue should be reinvested in housing initiatives rather than government projects that demand a large amount of labor. It called for the extension of Infrastructure Development Fund rebates, a review of developer community contribution rules, a reassessment of land taxes, and the permanent establishment of transfer duty concessions for off-the-plan and under-construction developments.
In light of these challenges, the report emphasized the need for government support to enable the development of more affordable housing options. It called for policy changes such as extending rebates, reassessing tax structures, and making transfer duty concessions permanent in order to encourage more affordable housing developments. The report urged the government to prioritize housing initiatives over labor-intensive government projects in order to address the growing demand for affordable housing in the current market.
Overall, the report highlighted the difficulties faced by developers in the current housing market, particularly in building smaller, more affordable apartments in less premium areas. Rising construction costs, driven by labor shortages and competition from other sectors, have made it challenging for developers to proceed with these projects. The report called for government support in the form of policy changes and financial incentives to enable the development of more affordable housing options and address the growing demand for such properties in the market.
