Residential developers in WA will have "their time in the sun" for the next 18 months to two years, according to ANZ's head of property research Paul Braddick, who said low interest rates were keeping homes about as affordable as they have been for the past 30 years.
Speaking at an Urban Development Industry of Australia market predictions gathering, Mr Braddick said record low interest rates were not sustainable and the ease of buying would deteriorate with the arrival of higher interest rates.
"Inevitably, we do have to return to a neutral monetary policy, which most people would say is between 4.5 per cent and 5.5 per cent," he said.
"If we do see anything like the 200 basis points that we are suggesting in the 2015 to 2016 period, then affordability will deteriorate and it won't be as easy for developers to get their pre-sales as it is now."
For now though, Mr Braddick said money would continue to be cheap and as well as helping affordability, it was relieving pent-up demand.
The unprecedented surge in migration to WA, where population growth is 70 per cent above the long-term average, was not being met by enough new dwellings and was likely to trigger capacity issues for the State's development sector, Mr Braddick said.
"There has been clear under-building in Perth since 2008 and the bottom line is that shortage or pent-up demand will be with us for a long, long time."
In its latest survey, the Housing Industry Association ranks WA as the strongest residential building market in the country for the first time in five years, but notes the building industry has been stuck in the slow lane despite mining investment and strong population growth.
The UDIA said land supply was tight but developers were keeping up with demand.
Land sales were 40 per cent above historical averages in the September quarter and the number of blocks on the market fell 39 per cent in the year to September.
UDIA's WA chief executive Debra Goostrey said it was clear that WA had a significant shortfall of new homes.
"The HIA forecast identified a 32,000 home shortfall for WA in its October report and this estimate increases to 43,000 by June 2017," Ms Goostrey said.
Because of WA's population growth, owner-occupiers and upgraders are behind most home transactions. But in NSW and Victoria, the increase in activity was being driven by investors.
"Investors are getting back into the market but we don't have the east coast's very strong investor market and that means we are not building enough for the rental market, so people end up struggling for somewhere to rent," Ms Goostrey said.
Another enduring WA theme is the high demand for free standing houses.
"A big part of the increase in new dwelling approvals for Sydney, Melbourne and Brisbane has been in the multi-unit sector and we have seen a remarkable amount of development in high-density, inner-ring or CBD apartments in those cities, but we are not seeing that in Perth," Mr Braddick said.
"In Perth, about 80 per cent of the market is for houses but in Sydney that number was closer 35 per cent.
"Perth has been able to resist that trend so far but at some point you would imagine inner-city, apartment-style living would increase from the last decade."