Housing affordability has significantly deteriorated in Western Australia due to rising interest rates and limited supply, a report says.

May 5, 2023

Housing affordability in Western Australia has significantly deteriorated over the past two years due to rising interest rates and limited supply, with experts warning there’s no end in sight.

Loan delinquency among new mortgage holders has tripled and new-build starts fell by a third last year, according to Bankwest Curtin Economics Centre research.

Housing Affordability in WA 2023 also reveals private rental affordability is unlikely to improve soon and more social housing is desperately needed.

Private sector rents increased about 13 per cent over the past 12 months and rising interest rates have inflated mortgages.

Economist Alan Duncan said average monthly repayments had risen about $1000 for an loan of $600,000.

“These extra payments add to cost-of-living pressures driven by inflation and may lead to an increase in mortgage default,” he said on Friday.

Increasing rates have also reduced mortgage borrowing capacity by about 25 per cent restricting options for many people trying to purchase.

“(The) borrowing capacity for new purchasers has fallen sharply, making it more difficult for first home buyers to break into home ownership,” Professor Duncan said.

He said the number of homes listed for sale also remains well below the 10-year average, reducing choice and making households less likely to put their property on the market.

“The lack of established supply and relative affordability of the WA housing market has underpinned price growth in the state and prevented the type of price falls seen in NSW and Victoria,” he said.

Housing expert Steven Rowley said some builders had struggled to complete residential projects on schedule due to labour and material shortages.

“More than 27,000 homes were under construction at the end of 2022 but rates of completion remain slow and financial pressure continues to build on those consumers paying rent while servicing their mortgage debt,” the director of Curtin University’s Australian Housing and Urban Research Institute said.

He said WA’s new dwelling supply was expected to remain well below the 15-year average over the next two or more years and this would limit the options for buyers and renters.

“Increased cost and build times mean people are reluctant to build and increased costs mean it is very difficult for developers to deliver financially feasible multi-residential developments,” he said.

“Eventually completions will feed through into supply and this report estimates around 10,000 households will gradually leave the rental sector and move into their new dwelling.”

The Real Estate Institute of Western Australia estimates about 19,000 homes left the rental sector in the past two years as landlords took advantage of price growth and sold up.

“(This) means supply in the rental sector will remain constrained with little relief for tenants,” Prof Rowley said.

The Curtin University report also highlights the challenges faced by tenants in the private rental sector, with vacancy rates having remained around or below one per cent since September 2020 and average rents having risen $200 per week.