House prices in some parts of Australia are more than 20% above pre-pandemic levels, and many cities have seen annual rent increases of more than 8%, even as the country’s population growth has stalled amid two years of border closures.
Experts say the situation is the result of several factors that contributed to many of them emerging before the pandemic, such as a lack of investment in affordable and social housing and an increase in short-term rents.
The past two years have also amplified other long-term trends such as smaller household sizes, relocations from capital cities, diminishing supply of rents and pent-up demand for home ownership.
Apartment rents in some areas of greater Melbourne fell nearly 30% in 2020, but have recovered nearly all of that in the past 12 months, according to recent CoreLogic data. Tim Lawless, director of research at CoreLogic, says border closures may have contributed to this initial decline due to the lack of immigrants, tourists and international students.
But the price recovery began long before the borders opened as Australians chased after what are now relatively affordable housing in the inner cities.
Sales also recovered from a brief pandemic storm, with 2021 seeing record housing turnover. There has been a roughly 30% rise in home prices in Greater Brisbane through May 2022, compared to 15% in apartment prices.
“This weakness early in the pandemic was mostly caused by the high-density markets within the city, which resolved themselves very quickly,” Lawless said.
“So [recovery] It was driven by local demand for rents away from homes toward units, simply because they were so affordable.
“Now that is amplified by more international students returning, and external migrants coming back [and] More properties returning to short-term rentals as well.”
According to Dr Chris Martin, a senior research fellow at the University of New South Wales and co-author of a recent report on the impact of Covid on housing, the rental supply in 2021 was more than 20% below the 2016-2019 average and has gotten worse since then.
Martin says there are a number of reasons for the drop in supply, including increased purchases by resident owners, properties listed for short-term rentals, and that “a lot of normal rental turnover hasn’t happened.”
“The rental market impacts of the pandemic and the consequences of the pandemic have varied and created new developments regarding a long-standing problem – the inadequacy of affordable rental housing, the private market and social housing for low-income people. It has been a chronic problem.”
Even as more people chase fewer rents, sales are also hitting new highs.
“During 2021, we saw the number of home sales reach record levels. Over 600,000 homes were sold. But that came after a period between 2015 until [to the] In the middle of 2019 as housing turnover has been steadily declining,” Lawless says.
The main factor driving housing values due to the pandemic has been household savings. We have seen the household savings rate rise to record levels during 2020.
“For anyone looking to borrow, you’ve had this dual effect of dropping interest rates to record lows as well. [an] Increase the ability to [service loans]. “
Annual population growth declined from 1.5% in March 2020 to 0.1% in March 2021. Although less immigration has contributed to this, local immigration may have a greater impact on the housing market.
“The big shift during the pandemic has been people who can work from home and go to bigger homes, away from cities, to regions and even between states…there has been a significant turnover in regional real estate, and real estate sales in regions,” Martin says.
“This also contributed to the tenants in the areas, who may not have been willing to relocate, and have had a really hard time.”
The March 2021 quarter saw the largest outflow away from capital cities since the Australian Bureau of Statistics began collecting data in 2001. The previous record was set in September 2020.
Average household size has declined for a century—from 4.5 people in 1911 to 2.6 by the 2016 census. One- and two-person households are now the majority of households.
This trend may have accelerated during the pandemic, as people tried to find more space and convert spare bedrooms into offices.
Smaller household sizes may have inflated rent demand. This is perhaps the best explanation for why the demand for rents has increased.
“Smaller family size, when applied to the population, means that rent demand has already been inflated, despite the fact that closed borders have reduced the level of rental demand from abroad.”
Even with private rents under pressure, Martin says social housing has been on a “starvation diet” for more than 30 years.
“[Social housing] It has not grown, and has lagged behind the housing needs of a growing community, whether by immigration or natural population growth. We have a growing population and a portion of that population needs low-cost rental housing. And we have a private rental sector that doesn’t do that either.”
There was only 9% growth in the social housing stock between 2006 and 2020, according to a recent working paper from the UNSW City Futures Research Centre. This is despite the significant increase in population (and displacement) during that time.
The federal and some state governments have announced policies to build more social housing. But Martin says that may not be enough, and that governments should explore more help, as well as rent control.
“The increase in social housing cannot come fast enough to deal with it [acute rental affordability] Problems. To the extent that other social housing is needed, other measures are needed in these current circumstances.”
Meanwhile, Lawless says newly opened borders may add more pressure on housing costs in some areas.
We will likely see rental demand pressures swell. We can see a reversal of this trend towards smaller homes.”