WA government underwrites new apartment builds to combat ‘market failure’
The Western Australian government is taking the extraordinary step of signing off on new apartment developments to address a “market failure” in high-density housing in the state.
In what Premier Roger Cook has called an “elegant” solution to housing pressures, the state will set aside $250 million in its upcoming budget to guarantee the purchase of up to 50 per cent of off-plan flats or townhouses in projects that have not yet been built.
It is expected to fund the delivery of up to 1,200 flats in the state.
Cook gave Treasurer Rita Saffioti and Housing Minister John Carey credit for the initiative, which he said was “elegant”, “smart” and would pave the way for more private investment.
The idea is that by guaranteeing apartment purchases, developers can easily meet stringent bank requirements that more than 50 percent of the homes must be pre-sold before the bank will approve financing to begin construction.
The guarantee, provided by WA’s own lender Keystart, will enable the government to buy up to 50 per cent of unsold flats or townhouses at 10 per cent below market price when the project is completed.
Keystart will use these purchased houses in its own equity program.
If the developer sells these flats privately during construction, the state is relieved of the guarantee.
“This gives developers the ability to convert approval into construction in the affordable apartment area,” Saffioti said.
“Financial institutions now require 50 percent to 80 percent of presales to support financing of these developments.”
Saffioti said the government would be at risk if the builders collapsed, but it was worth the reward.
“Our risk is similar to that of any home buyer regarding pre-sale warranties, but we believe we should be a part of it,” he said.
“If we don’t partner to get these flats built, we won’t get them built. It’s that simple.”
The Keystart initiative is modeled on the NSW government’s $1 billion pre-sale funding guarantee, which launched in October and has received 45 expressions of interest from developers.
Cook also announced that the Keystart house price threshold has increased from $800,000 to $860,000.
Carey said the plan was an unprecedented measure for unprecedented times.
“We need flats. This is part of Perth’s future. We want to continue to grow new land properties, but for Western Australians who want choice, we need to make sure we have flats coming to market,” he said.
Property Council of WA executive director Nicola Brischetto had been championing the plan and was pleased it had been accepted.
“It is not uncommon for the government to intervene when there is market failure,” he said.
“Pre-sale insurance helps [developers] “This allows them to start development faster and provides a little more flexibility to respond to changes in construction costs.”
Strategic Property Group managing director Trent Fleskens said on the positive side it would help get apartment developments started more quickly.
However, from the developer’s perspective, if the guarantee is requested, this means that they will sell the unsold shares at a 10 percent discount.
“This is a backstop that will keep a few apartment developers from going bankrupt in the last crash,” he said.
“The most likely outcome in this market is to allow developments to go straight into construction, which puts the project at risk and then most will not require the warranty because they won’t need it and they won’t want to sell at a 10 per cent discount.
“Overall this is a very strong policy and eliminates a major development risk for the apartment segment.”
Fleskens said the areas the policy hasn’t fixed are the current backlog of most high-density projects or a shortage of builders.
Hamish Hastie is WAtoday’s state political correspondent and the winner of five WA Media Awards, including the 2023 Beck Award for best political journalism.Connect with: X or email.
