Rising rates won’t hit home building in WA or Victoria, ABN Group says
Perth’s undersupply of housing relative to demand is so great that prices will keep rising “substantially” and new home sales in WA will not be affected by even two more interest rate increases, says Dale Alcock, head of the country’s second-largest home builder, ABN Group.
Victoria, the other state where Perth-based ABN operates, suffered from less of an undersupply, but lenders and consumers were already expecting further interest rate rises and activity would be little affected, ABN said.
Dale Alcock says builders in WA “would be crazy to discount in this environment because they don’t need to”. Darrian Traynor
As stronger than expected inflation data on Wednesday heightened expectations the Reserve Bank of Australia will hike the benchmark lending rate to 4.35 per cent next month, with another increase in December.
But as he laid out ABN’s return to a modest profit for the year to June after a restated $49.1 million loss a year earlier, Mr Alcock said the WA market, coming off a sustained low in home-building activity between 2015 and 2020, would continue to boom.
“For the next two years, the Perth and WA market values will increase substantially,” Mr Alcock told The Australian Financial Review on Wednesday. “The impact of those two rises in WA is significantly less on average than it is in Melbourne.”
In Victoria, the company’s conversations with lenders indicated the affordability of land and housing for buyers would change if rates rose further, ABN CEO Andrew Roberts said.
“I’m sure lots of people are hoping for a pause and a continuous pause and then coming off at the back end of middle and back end of FY24,” Mr Roberts said.
“But we think in Victoria, it won’t have a material impact on our activity because people are pretty much expecting what will occur.”
The company, which made 3506 housing starts in the year to June – pushing revenue up more than 17 per cent from $1.21 billion to $1.42 billion – was planning to be disciplined on costs and would limit its sales and starts in the current year to the 3200-to-3400 range, Mr Roberts said.
“Starts can be impacted by titling with developers, so it’s not an exact science, but certainly we would see FY2024 [as] very similar to FY2023,” he said.
WA’s rental market vacancy rate was below 0.6 per cent, interstate and overseas migration was boosting the population and investors from the eastern states were competing with locals to buy in the Perth market, Mr Alcock said.
This meant there was no need for builders to cut prices, he said.
“They would be crazy to discount in this environment because they don’t need to,” he said. “You would say in Victoria, it’s kind of a more balanced market.”
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