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Has The Perth Buying Cycle Finished? · The Follio Property Podcast

• 0:05
  Welcome to I Call Bullshit, property podcasts, where we separate real estate fact from fiction. I'm Rhys, and in every episode, we uncover the truth behind the property market's biggest claims and biggest trends. Joining me is our resident expert, Lachlan Delahunty. He's seen it all and isn't afraid to call out the bullshit when he sees it. Welcome, Lachlan.
• 0:24
  That's a good start. Straight off the bat, round one, he's just hit that out of the park. Good to be here, Rhys. Yeah, we did a lot of preparation for this podcast, so it was quite easy to pull that off. Let's jump into it. First topic, Lachlan, Perth buying cycle has finished. Before I start unpacking it, let's just read out a couple of articles. APR, slowing Perth, Brisbane, housing markets boost affordability hopes. Australian property investor, is Perth property now unaffordable? Yeah.
• 0:53
  And then on the other side, Australian property update, Perth property boom shows no sign of slowing in 2025. So Lachlan, how do we know when a market is finished? That's a good point. So looking at the fundamentals, Rhys, how would you try to understand when a market's capped out from an affordability point of view or when it's finished its cycle? What would you look at?
• 1:12
  Yeah, I think from my perspective and not a professional perspective, you'd see stagnation, house prices, you'd see high vacancy rates. You would see, you know, entry level people struggling to get into the market.
• 1:29
  I'm not sure how you see it. Yeah, no, that's exactly those things you mentioned. So best is look back, using Perth as a localised area, to understand what the market looked like when it started to slow down. And, you know, for people listening who are Perth-based, that wasn't too long ago. We're talking 2013, 14, and then it got really dire in sort of 16, 17. And the key to the metrics that you track, it's driven a lot by population growth.
• 1:56
  So that's the first thing because that's all about demand. People moving into a state from overseas or interstate puts immediate pressures on house prices. So, you know, we look at what happened in that period of slowdown. We saw net interstate migration in the negatives. Typically 15,000 to 20,000 people were leaving Perth year on year for work opportunities elsewhere, particularly on the East Coast.
• 2:18
  So, you know, in this particular time now, it's actually the opposite. We're receiving $15,000 to $20,000. So that's a really big indicator. You also start to see, you know, rents is one of the first things to go in any market. So we track this when we want to enter markets. If we start to see vacancy rates come off and we start to see rents rising, that's typically the first indicator.
• 2:38
  you know sign that the market's starting to show value and opportunity so in contrast to that what we'd be looking to see a market that's starting to stagnate or potentially you know come to its conclusion in cycle is that rents are starting to fall and vacancy rates are starting to rise so looking in that in isolation at the moment are we seeing that in the Perth at the moment what do you think what are you seeing on the ground
• 3:00
  Well, I mean, from what we're hearing, no. I think, you know, it's still tough, tough market to get in, especially in that entry level stock from a property standpoint. Rentals as well. I think there's a definitely seems like there's more opportunity out there.
• 3:13
  There is, but the vacancy rate's still well and truly below sub 1%, right? And I think you raise a good point on the migration data as well. I mean, I myself left the country 9, 10 years ago and was probably one of the statistics that were driving away that net interstate or net overseas migration, but...
• 3:30
  you know, coming back to Perth in the last six months, it does say that people are starting to see it as a viable lifestyle choice. And it's not just Perth. I think that applies to your Adelaides of the world, Brisbane, Brisbane to a certain extent as well. But it definitely feels like, you know, that lifestyle post-COVID, it is, you know, it's not the mining industry that's driving everyone here. It is, you know, a lifestyle choice as well, I think. And that's
• 3:52
  That's one of the big things I've noticed just since returning back to Perth. Definitely. And I get asked that on a daily basis. Is Perth solely reliant on mining and therefore what's happening with China and our mate Donald Trump causing chaos? Is that going to have a huge impact here locally? The difference in this boom, if you want to call it, I don't like using that term, but people are calling this a boom in property prices compared to our previous boom is that was solely driven by mining related industries, employing people overseas and interstate and
• 4:22
  This is slightly different person, a little bit of a different platform now. We've got a lot of diverse range of employment, you know, the construction industry, tourism, mining, mining related still plays a big part, but it's not solely relying on it as it once was. So looking at that, when you look at population growth, you could, you know, we're certainly on the demand side of the scale. People are still moving here. So we've got to consider that.
• 4:43
  And, you know, the supply side of the equation, the lowest stock on market, still sub 5,000 properties on the market. Vacancy rates, you know, a balanced market's typically about 2.5%, 3%. We're at 0.6%, so very undersupplied from that front. And then, you know, the next thing is affordability. You know, the median house price now above 800,000. And that's the big thing we're hearing at the moment. Like, is, you know, is Perth now, you know, reference those first two articles I mentioned at the start of the podcast, but, you know, is Perth now unaffordable?
• 5:13
  And on the ground, it probably feels that way. People fail to understand that Perth incomes are the highest in the country, with the exception of Canberra. Government jobs, cushy jobs, and they get paid the big bucks. But here in Perth, we get paid extremely well in comparison to New South Wales and Victoria, yet our house prices are still relatively cheap in comparison. So our affordability index at the moment, which for those punters at home and trying to work out what that is, it's the average wage consumed by the average mortgage
• 5:43
  So how much out of your pocket every year is going to your mortgage? It's at 46%. So, I mean, on that kind of frame of mind then, do you think, you know, people that perceive it to be unaffordable, they're used to having, you know, a big surplus of cash each month because their mortgage payment was this. But actually, you know, when you look at maybe other states or cities, we actually, you know, we had a bit of room to go. And this is probably more norm from an affordability standpoint.
• 6:10
  Yeah, good question. So when we fast back four or five years ago, our affordability was about 30% and that become the norm, right? You know, a third of my wage or a bit over, sorry, a bit under is going to pay the mortgage. I'm comfortable with that. Now it's, you know, it's 10 to 15% above that. It starts to get, okay, is this sustainable? But to give you context around the country, Sydney's currently at 92%.
• 6:31
  So their price to income ratio is at 14 times. So that's an extreme, right? I'm not trying to ever compare us to Sydney. But if we look at even, say, Brisbane, Brisbane's currently at 54%. So we're still well and truly far more affordable than that market. And looking back in Perth, which is always important, in our previous growth cycle, we got to as high as 59%.
• 6:56
  So we're still an extremely long way away from that. And if you just looked at the factors that go into the affordability index, which looks at wage growth, median house prices and interest rates, if you look at the only two variables in that and if interest rates were to stay the same, highly probable that they may be dropping later in the year, which would increase affordability.
• 7:17
  And wage growth stayed stagnant, which as we're seeing, wages are rising. But those two variables to stay stagnant, the Perth market would have to increase from today 60% to catch its previous affordability high. So does that make sense? That makes sense. So, you know, what you're saying is from a historical sense...
• 7:39
  And if you're comparing us to some of the other capital comparable cities, so you're Brisbane's of the world, we still have a lot of room to go on an affordability standpoint and could stretch even further with the property prices where they may go this year.
• 7:53
  Yeah, exactly. So it's easy to read headline media and hence the purpose of the podcast. But it's more important to have a look at the facts and taking yourself out of the market altogether and take recency bias out of it, what's happened the last five years. If you purely just look at the stats...
• 8:09
  um you know supply and demand as we talked about and affordability overlaid with confidence that's another really important factor and confidence comes from people having jobs we're going to abundance them here locally in perth confidence comes from media sentiment and you know read the room it's still very very positive out there people are still you know pro-property um sentiment can come from interest rate drops as we've seen recently
• 8:32
  So those four things you need to always look at in isolation, supply versus demand, affordability and confidence. And every one of those metrics at the moment is positive for Perth. And just on that, I know you touched on employment briefly there as well. How does Perth stack up versus the other capital cities in terms of job opportunities or unemployment data as well?
• 8:54
  Yep, we're the lowest unemployment and underemployment city in the country at the moment, which is probably not surprising. So underemployment looks at people who currently have jobs but have capacity or want further employment, so it might be part-time capacity. And at the moment, we're the most employed state. So that breathes confidence when people have money and their wages are growing, and that typically comes from strong economies but strong employment and strong workforces, then typically that is...
• 9:24
  you know, expressed in the market through house prices. Yep. And I guess like looking at how Perth has run in this current cycle, so over the last three or four years, how does that compare to, you know, previous cycles? Like is there anything that we can look at some of the data from, you know, 20, 30 years ago that's noticed some similar trends or are we operating in a new cycle at the moment?
• 9:46
  That's a really good point. So when I present to various banks around how markets move and contract, I always highlight where any market's been historically because it's our best judge of what it could do during the future. And this is, again, isolating Perth. If you look at our last three growth cycles, it was from early 90s, about 89 essentially to about 90, 94. Property prices went up by 205%.
• 10:13
  over a very short period, five to six years. If we then look at the mining boom, the historical mining boom of 2000 to 2006, prices went up by 215% in a six-year period. So that's pretty extreme. We're not talking about,
• 10:30
  You know, what we're seeing at the moment, 60% to 70% across the board, there's some evidence of the market's doing less than that, evidence of the market's doing higher than that. We're talking markets historically, Perth has done well over 200% in its last two previous cycles.
• 10:47
  So if you just looked at that in isolation, you'd say we're a long way from where we've been historically. Do I think that's going to happen and play it? We're going to do another 200% in this cycle? No. But it's looking at history would suggest that we're a long way from where we've been previously.
• 11:02
  Nice. And do you think the mindset of either a first-time buyer or, you know, someone looking to enter the market has shifted a little bit with Perth? I think, you know, we're a similar age. We grew up, you know, in Perth that you would get a four by two with six, seven hundred square metres block of land. That was kind of what was embedded. Get into the market. Yeah.
• 11:23
  timing, times everything get into there. But now, looking at some of the core logic data that we saw in February, Perth had an increase along with all the other capital cities. But that was driven by unit sales actually. So the unit sales Perth was leading the country at 1.1%. So do you think now people in Perth are starting to, you know, see that as a new entry point rather than that sort of four by two house?
• 11:53
  Exactly, and that's why the market appears unaffordable, right? Like you said, everyone in Perth, including us, is so comfortable with the idea that we're going to have a four-by-two and we're going to have a backyard and ideally a pool to enjoy the nine-month summer that we have. But in reality, that's not any other city in the world.
• 12:10
  Unit living, apartment living, high density living. Sharehouses. Yeah, all that sort of stuff's common practice. You were overseas in London for how many years and I'm sure you shacked up with 12 housemates for the most part of it just to make ends meet and have some money at the end of it to buy a beer. But in Perth, less than 20% of the market is made up of that higher density. You look at Sydney, it's north of 40%. So we're a long way behind. And so that affordability piece, it is unaffordable.
• 12:38
  It is when you're looking for that four by two family home. I get that. But we have to look at other avenues and that's where higher density will become more apparent in the local marketplace. And we're seeing that. And that's when you can buy sub-medium. You can still buy apartments, units between that sort of $500,000 and $700,000 price point.
• 12:56
  Yep. And just reflecting on, you know, some of the key fundamentals that you were mentioning earlier, in terms of dwelling approvals, you know, that's been a bit of a buzz, buzzword in Perth over the last couple of years, you know, it's, there's been clearly outlined, we're not building enough properties for the amount of people that are coming in, and the amount of buyers that are out there. How do you see that looking in the next sort of 12, 18 months?
• 13:20
  Yeah, so I track this religiously. So January data just come out this morning. So there was 987 dwellings approved in January. So hypothetically, you'll see that come out of the ground in 12, 18 months, based on what we're seeing at the moment, hopefully closer to 12.
• 13:38
  So that's what we're looking at to see. Another thing, going back to the start of the podcast, Perth historically has a history of oversupplying the market where things are going well, and that's what happened in 13 and 14. Everyone was moving from west to east, yet building approvals went through the roof. We're talking dwelling approvals.
• 13:57
  to two and a half thousand a month so being sub a thousand is demonstrating we're still not approving enough homes and that's to say that all those approvals are going to turn into completions which typically they don't because of construction constraints labor constraints and those sorts of things so we will monitor this closely but you know net that out if there's a thousand to fifteen hundred approvals on a on an annual basis we're talking 15 to 18,000 dwellings that's certainly not enough to keep up with the
• 14:24
  you know, the 80,000 migration numbers that come in in the last 12 months. And that's what we had 85,000 people come in from overseas and interstate. So 30,000 doesn't, sorry, 85,000 doesn't go into 30. And then when you look at what the available supplies in the market, there's currently less than 5,000. So we're short circa 50,000 properties on that metric alone. Yeah.
• 14:46
  Yeah. And I guess in terms of looking into 2025, you know, you've got ears on the ground, you know, with multiple different asset types and areas. What's been the sentiment like at the moment as we kick off 2025?
• 15:03
  Look, there's a huge push led from government to try to increase housing supply. There's, you know, different methods that are being tested. I think we'll see an increased supply over the next 18 months. But like I said, even if, you know, there was a significant change in policy that allowed development to take place quicker and easier, you're still 18 months from that coming out of the ground. So the short-term fundamentals for that means we're going to be undersupplied for the next 12 to 18 months.
• 15:30
  But I do think we'll start to see those building approval numbers get back up to a couple of thousand a month. That will be likely because, you know, there's a demand for it. Developers are making financial returns on that, so they're incentivised to get things out of the ground. The biggest problem is that high-density space. You know, I went to an event a few weeks ago where pretty much the consensus was, unless it's above, you know, $13,000 a square metre on the exit,
• 15:58
  developers can't make these apartment projects viable. So on a 100-square-meter apartment, that's $1.4 million. That doesn't solve that affordability entry point, right? So that concerns me, and that means that we can't solve this housing shortage quickly, which for those that invest in the market and hold property is a good thing because when there's a scarcity of properties and there's higher demand than there is, supply prices will rise.
• 16:24
  For those trying to get in, it makes it more difficult. And certainly for those that, you know, early in their journey trying to save for a deposit, it's going to become more difficult in my eyes. So Lachlan, what's the verdict? Fact or fiction do you call bullshit?
• 16:38
  Bullshit on what, Rhys? Just rephrase the first question. So Perth buying cycle has finished. You know, we mentioned some of the articles earlier in terms of what their thought process. You've only got to go on YouTube and type in Perth 2025
• 16:55
  predictions and seeing all the negative connotations that the market or the cycle has done. Yep. I call bullshit. I call bullshit. And the reason I do is because, not because I'm biased, because we live here locally and we want Perth to do well. It's purely factual based. Take yourself away, out of the market altogether and just look at the data. It's still the strongest market in Australia from an investment point of view.
• 17:19
  And the reason you'll see a lot of headlines, I think you'll see a lot of reels on Instagram, TikTok, YouTube, like you said, will likely be from East Coast buyers agents or investment groups that are going to have a natural bias to the East Coast because that's where they're located and their ease to transact is on the East Coast. So that doesn't surprise me. We're going to see that. We're always going to see that in various markets. But just to sell out that the Perth property cycle is topped out, I call bullshit. Wow.
• 17:46
  Make sure to join us next episode. Stay informed, stay curious, and keep calling out the bullshit.