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Local Jobs, Local content…Local impact?
An examination of the potential impact of the new McGowan State Government on the WA property industry
On March 11, this year, Western Australian voters elected 41 Labor MP’s in the State’s Legislative Assembly, allowing Mark McGowan to become Western Australia’s 30th Premier.
The new Premier was elected, in part, for developing an expansive list of election and policy commitments centred around job creation. Ahead of the election, the new Government released a Plan for WA jobs focusing on diversifying the Western Australian economy post the resources investment boom in order to create 50,000 jobs. During the campaign a publication outlining 200 fresh ideas for WA was also released focusing on a broad range of issues from health and law and order to innovation and education.
The size of the electoral victory means that Mark McGowan and his team will be in Government for at least the next eight years. Over this time, the policies will have a significant impact on the performance of Western Australia’s property market, both metropolitan and regional.
The upcoming State Budget, through funding allocations will highlight the Government’s policy and economic priorities – at this stage, before the next State Budget, election commitments are technically unfunded policy mandates. In order to provide an interim guide for the local property industry, we have reviewed the new Government’s two major policy documents – A Plan for WA Jobs and 200 Fresh Ideas, to gauge their potential impact on WA’s property sectors.
The property industry will play a key role in facilitating the implementation of new policy measures. The industry creates the spaces for people to live, work, shop and rest. Much like the broader economy, the property sector is looking for policies that will drive employment (to fill vacant offices and warehouses), attract investment and deliver needed infrastructure. After record new development over the last decade, similar to the resources sector, the next few years will see the industry maximising the utility of properties and switching investment from new projects to the maintenance of existing assets.
Looking forward, which sectors are likely to gain and which are likely to feel continued pain as a result of the new Government’s agenda?
Upon review, the property sector, largely, is an interested third party in the McGowan policy agenda. Few policies will impact the property sector; fewer still will have a negative impact.
Of Western Australia’s property sectors, industrial property markets are likely to be the property’s sector major beneficiary of the new Government’s agenda.
The Government has committed to form an Industrial Lands Authority which will control the delivery of industrial land in metropolitan and regional areas. Without a Budget for the new Authority, it is difficult to determine the timeframe for its potential spin off from LandCorp, budget for land acquisition or its priority projects. It is likely that the Western Trade Coast and Latitude 32, highlighted as a priority area in 2015’s Ministerial Review of LandCorp, as well as other industry discussion papers, will be the focus. The area’s shipbuilding focus ties into the Government’s broader Défense agenda and the planned intermodal facility at Latitude 32 is a key stepping stone towards development of the Outer Harbour at Kwinana.
The Metronet project, building the lines and the railcars, will drive manufacturing led demand for steel fabrication facilities and project space for construction and engineering partners. This Government’s preference for rail is also highlighted by planned delivery of intermodal facilities in Bullsbrook and Mundijong in addition to Latitude 32.
Tying into the Government’s Innovation Agenda, the proposed ILA would have authority over Technology Park in Bentley, and planning for a future Technology Park in the northern suburbs (either Meridian Park at Neerabup or new land north of Two Rocks). In regional areas delivery of a food hub at Kemerton is also proposed. Given its location, this would tie into the beef industry in the Harvey area over the fruit industry in Donnybrook.
The implementation of a WA Local Industry Participation Plan and an increased focus on apprenticeships and vocational training have the potential to stimulate demand for industrial property and land in the years ahead, in line with forecast growth in the manufacturing and civil construction sector.
The tourism sector is the other property sector likely to significantly benefit from the priorities of the new State Government. $450 million is planned for event tourism and destination marketing. This is important as there are two major changes in WA’s tourism market. Business travellers are being replaced by holiday makers. According to Tourism WA, in 2016, leisure tourists grew by over 25%, with growth from China and the USA increasing by over 50% during the same time period. Secondly, metropolitan Perth’s tourist accommodation is set to grow by over 3,800 rooms between 2014 and 2020. This is nearly double the 2,100 room goal outlined by Tourism WA. In addition to the expanded Crown Resort at Burswood and the Ritz Carlton and Westin in the CBD, new rooms are being added in Fremantle, Midland, Subiaco, Innaloo and Rivervale. To maintain current occupancy levels, an additional 1.1 million nights worth of bookings will be required.
This additional capacity will, in part, be filled by attracting more national conferences to Perth. During the boom, local hotels didn’t have the capability to block book rooms in advance which is necessary to facilitate conferences. This year events such as the international technology conference, WWW, and the UDIA National Congress highlight the impact the supply already completed has had on the market. The planned Asian Business Engagement Strategy in Perth, featuring an annual ASEAN Dialogue, will boost hotel demand.
The new Government is planning to increase the number of micro festivals and pop up events hoping to expand on the success of current festivals such as Fringe. The ability of these events to draw interstate and international visitors will drive hotel demand. Other policies, such as supporting the development of the Fremantle Passenger Terminal precinct to facilitate more cruise ship traffic, also have the potential to support local catchments.
In Perth’s slowing residential construction market, there were no announcements regarding first home buyer grants or a policy to facilitate the downsizing needs of WA’s ageing population. However, a commitment to invest $2 million over five years for a long-term international education strategy has the potential to increase the 55,000 international students enrolled in WA institutions in the years ahead, adding demand for housing and student accommodation. A 4% tax on foreign buyers from 2019 will negatively impact Perth’s apartment development market, potentially reducing demand by up to 150-200 apartments per year based on current sales trends. (It should be noted that this tax, whilst the only new charge for the industry, is being introduced to freeze TAFE fees. International student numbers in VET colleges in WA such as TAFE has grown by over 500% since 2002. Changing the pricing of TAFE through an in State resident discount may be a better way to deliver the intended outcome of a better skilled local workforce.)
Rail stations along the new MetroNet lines, as well as existing heritage lines, will be a focus of Perth’s ongoing densification. While favoured by selected Governments and academics, using value capture as a mechanism to pay for infrastructure is a concern. Much like the Perth Parking Levy, the impact of this approach will be to push development outside the immediate catchment of the mechanism. Higher land prices will foster continued housing affordability issues. Alternatively, Government owned land around stations could be sold for development, with proceeds used to pay for the new stations. Further, extra ‘land’ could be secured by ‘air’ property rights or altering planning mechanisms currently restricting development such as road reserve boundaries around stations. PPP’s, Federal funding directly through the Budget or through Infrastructure Australia, are better financing approaches.
Strata title reform, in particular Community Titles, will help to refurbish older apartment stock and facilitate apartment development around expanding Perth shopping centres. Strata title reform also helps to revitalise Perth office stock allowing for the purchase of buildings for redevelopment or demolition. Over 12,000 sq m of vacant strata CBD office stock, in two properties, could be removed as soon as the legislation is passed.
Despite office vacancies the equivalent of 20 Woodside Plaza buildings (over 800,000 sq m) across metropolitan Perth, there is no policy beyond economic diversification to assist in reducing vacancies. The plan to develop Scitech and the functions of Perth Modern at the Perth City Link by 2020, whilst a welcome move to develop a high-rise school, is unnecessary. There are a number of older vacant office buildings in the CBD and West Perth that could accommodate a Government primary and high school. This would reduce vacancies and encourage more families to locate to the city.
The major policy implication is the Government’s announced plan to reduce the number of government agencies by 20 per cent, as well as the number of senior executive service positions in the civil service by 20 per cent. In the wake of the resources construction boom the State Government is the largest occupier of office space in WA accounting for nearly 20% of office space across the Perth CBD and West Perth. The State Government plays a key role in the occupation of secondary spaces, which have the highest vacancy – in terms of C Grade stock, the Government occupies over 80,000 sq m more than the next largest industry (legal). In addition to the 30,000 sq m reduction in Perth CBD office space decentralising to Bunbury, Fremantle and Joondalup to support suburban employment, these moves could see a similar amount vacated by the end of the decade.
There are no policy announcements specific to the retail sector which, through private investment, will grow Perth retail space by over 4 Garden City sized shopping centres at a value of nearly $5 billion dollars over the next 5 years.
Broader policy commitments will also provide opportunities to the property sector and the broader economy. Major policies and commitments include:
- Develop Brand WA to improve international marketing through a consistent message – can be accessed to attract international tenants.
- Infrastructure WA and the supporting State Infrastructure Strategy – if independent and fully costed will provide certainty allowing for better infrastructure planning and delivery of residential and industrial land. The property industry needs to quickly define our short to medium term priorities.
- Retention of the Unsolicited Bids program will allow for private revitalisation of non-core Government assets and land.
- Retention of Development Assessment Panels.
- Commitment to the outlined long term infill housing targets. The new Government is supportive of greater density in Perth. This has been highlighted by a recent development proposal which the new Premier has expressed support of, as well as, increased high rise coastal development.
- A commitment to Innovation through measures such as a Minister for Innovation and ICT; Innovation hubs at Curtin, ECU and Murdoch, a State STEM strategy and a $14.5m New Industries Fund will foster the development of new technology companies, as well as greater collaboration by universities and industry. Scaling our technology sector will play an important role in WA’s international competitiveness. Technology was the fastest growing sector in the Perth CBD across 2016 adding over 8,000 sq m of demand across 41 new occupiers. Continuing this growth is key to rebalancing the occupation of the Perth CBD.
- A commitment to not increase taxes, given the current state of the State’s finances, means that any meaningful tax reform in terms of land tax aggregation, stamp duty exemptions for off the plan sales or payroll tax reduction is unlikely. The Premier, in the media, suggested he would “look at new taxes that don’t directly charge West Australians.” It would also suggest that revenue will be sought from increased Government charges – public transports fares, headworks, lodgements fees etc.
The McGowan Labor Government has committed to diversifying the economy from its resource and agriculture base to scale drivers of the 21st century economy: technology, international education, medical research and tourism, as well as traditional industries manufacturing and construction.
This is welcome news to the property industry and the WA economy. As is natural, election commitments offer something for everyone. The next important milestone for industry is the upcoming State Budget. This will highlight which commitments become actionable priorities and which remain text on a page. The Budget will also help to define the mechanisms and Government structure that will deliver economic diversity. Fundamentally, the State’s finances won’t allow for significant spending, so what is the most cost effective way the new Government can assist in growing the economy? By providing the framework for industry to flourish. The Government needs to commit to its stated policy of “targeting overly burdensome bureaucracy and poor and inefficient regulations that stifle jobs and investment.”
More broadly, our economic future is tied to defining Western Australia’s competitive advantage and desires for the future of our state. As previously argued by Y Research, we need to answer the question – outside of resources, what do we want our city and our state to be in the years ahead?
The new State Government policies provide many potential avenues. What needs to be decided is: do we take a lottery ticket approach, supporting a number of industries in a small way or scale 1-2 significant industries in addition to the maturation of the resources sector? We needn’t look far for a potential model to adopt. In response to the decline in manufacturing post the car industry, South Australia, in 2014, outlined 10 economic priorities with clear, measurable targets. Further afield, global resources cities have focused on developing their technology and tourism sectors with growing investment in education, medical and alternative energy sectors.
What will our answer be?
The media defined the Perth of a decade ago as Dullsville. What we need now is for the new State Government, through the State Budget and future policy announcements, to define what Perth should become in the years ahead.
Fundamentally, WA is and will continue to be a commodity driven state. However, increasingly our most important commodity is time. While the new Government will likely have 8 years, industry does not. The world will not wait for us. In sectors, such as technology, tourism and international education, we are falling behind. We cannot wait for the next resources investment boom. Collaboratively, business and Government need to work out what these sectors need to create the next decades of jobs and get going.
A new Government with a new Agenda will be receptive to ideas. Their challenge is to move from the big picture policy development of opposition to the detailed plans and funding of governing.
Whatever is decided, Perth’s property industry, through its office, shops, sheds, apartments, houses and hotels, will be ready to facilitate WA’s future.