The West Australian government is taking the extraordinary step of listing new apartment buildings to address “market failure” in the state’s overcrowded housing.
In what has been called an “elegant” solution to housing pressures by Prime Minister Roger Cook, the government will set aside $250 million from its next budget to ensure the purchase of up to 50 percent of off-plan apartments or townhouses in projects that have yet to be built.
It is expected to help finance the provision of up to 1200 apartments in the state.
Cook credited Treasurer Rita Saffioti and Housing Minister John Carey for the plan, which he said was “elegant”, “brilliant”, and would unlock more private investment.
The idea is that by guaranteeing the purchase of houses, developers will be able to easily meet the strict requirements of the bank that more than 50 percent of the houses must be sold before the bank approves the funds to start construction.
The guarantee, provided by WA lender Keystart, will see the government buy up to 50 per cent of unsold apartments or townhouses once the project is complete, at 10 per cent below market rate.
Keystart will use the purchased homes in its shared equity program.
If the developer sells the apartments privately during construction, the government is released from its guarantee.
“It gives developers the ability to convert permits into construction in the affordable apartment space,” Saffioti said.
“Financial institutions now require between 50 to 80 percent of initial sales to help finance these developments.”
Saffioti said there will be a risk to the government if the builders fail, but it is worth the pay.
“Our risk is the same as any home buyer in relation to the pre-sale guarantee, but we believe we need to be part of this,” he said.
“If we don’t work together to build these apartments, then we won’t build them. It’s as simple as that.”
The Keystart program is modeled after the NSW government’s $1 billion pre-sale funding guarantee, which was launched in October and received 45 expressions of interest from developers.
Cook also announced an increase in the price of a Keystart home from $800,000 to $860,000.
Carey said the initiative is an unprecedented measure for unprecedented times.
“We need apartments. It’s part of Perth’s future. We want to continue to develop greenfields, but for those West Australians who want to choose, we need to make sure we have apartments coming into the market,” he said.
Property Council of WA CEO Nicola Brischetto was championing the plan and was delighted it had been passed.
“It is not unusual for the government to intervene when there is a market failure,” he said.
“Pre-sales documentation helps (developers) by allowing them to start that development faster, and it gives more flexibility to respond to changes in construction costs.”
Strategic Property Group managing director Trent Fleskens said, as a positive, it will help get apartment development faster.
However, from the developer’s point of view, if the bond is called, it means they will be selling unsold shares at a 10 percent discount.
“It’s a backstop that could have protected a few apartment builders in the last crash from going bust,” he said.
“The most likely outcome in this market is that it will allow the development to go directly to build the stage, which devalues the project and then most of them will not give a guarantee because they will not have to and because they do not want to sell at a discount of 10 percent.
“Overall it is a very strong policy and it adjusts the high risk of development to the apartment section.”
Fleskens said the areas that the policy did not fix were the fact that many high-density projects were not currently planned, nor the lack of builders.
Hamish Hastie is WAtoday’s government politics reporter and winner of five WA Media Awards, including the 2023 Beck Award for best political reporting.Connect through X or email address.
