House prices in parts of Australia are more than 20% higher than pre-pandemic levels, and several cities have seen annual rent increases of more than 8% even as the country’s population growth slows. stopped during two years of border closures.
Experts say the situation is the result of several contributing factors, many of which predate the pandemic, such as a lack of investment in social and affordable housing and an increase in short-term rentals.
The past two years have also amplified other longer-term trends such as smaller household sizes, exodus from capital cities, shrinking rental supply and pent-up demand for homeownership.
Apartment rents in some areas of metropolitan Melbourne fell nearly 30% in 2020, but have since recovered almost all of that over the past 12 months, according to recent data from CoreLogic. Tim Lawless, research director at CoreLogic, says border closures may have contributed to this initial decline due to lower numbers of migrants, tourists and international students.
But the price recovery began long before borders opened, with Australians driving out what was now relatively affordable housing in city centres.
Sales have also recovered from a brief pandemic, with 2021 seeing record housing sales. There has been an almost 30% increase in house prices in Greater Brisbane to May 2022, compared to a 15% increase for apartments.
“That weakness early in the pandemic was mostly coming from the high-density downtown markets, which resolved quite quickly,” Lawless said.
“And that [recovery] was fueled by indoor rental demand from houses to units, simply because they were so much more affordable.
“Now this is amplified much more by the return of international students, foreign migrants returning [and] more properties are also returning to short-term rentals.
According to Dr Chris Martin, senior researcher at UNSW and co-author of a recent report on the impact of Covid on housing, rental supply in 2021 was more than 20% lower than the 2016-2019 average and has since deteriorated.
Martin says there are a number of reasons for the drop in supply, including increased purchases by homeowners, properties listed for short-term rental and that “much of the Ordinary turnover in rentals did not occur”.
“The impacts on the rental market of the pandemic and the aftermath of the pandemic have been varied and have given new twists to what has been a long-standing problem – not enough affordable rental housing, from the private market and from social housing, for low income people. It has been a chronic problem.
Even though more and more people are looking for fewer rentals, sales are also reaching new heights.
“In 2021, we saw the number of home sales hit record highs. Over 600,000 homes were sold. But that came after a period between 2015 and [to the] middle of 2019 where housing revenue was steadily declining,” says Lawless.
“Household savings have been a key driver of home values due to the pandemic. We have seen the household savings rate reach record highs in 2020.
“For anyone looking to borrow, you’ve had this dual impact of interest rates falling to record lows, as well as [an] increased ability to [service loans].”
Annual population growth fell from 1.5% in March 2020 to 0.1% in March 2021. Although the lack of immigration contributed to this, internal migration may have had a greater impact on the housing market.
“The big twist during the pandemic was that people were able to work from home and were going to bigger homes, further from cities, across regions and even between states… There was a big turnover in regional properties , property sales in the regions,” says Martine.
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“It has also helped tenants in the regions, who may not have wanted to move, having a really hard time.”
The March 2021 quarter saw the biggest departure from capitals since the ABS began collecting data in 2001. The previous record was set in September 2020.
Average household size has been declining for a century – from 4.5 people in 1911 to 2.6 at the 2016 census. One- and two-person households now make up the majority of households.
This trend may have accelerated during the pandemic as people tried to find more space and turned spare bedrooms into offices.
“The small size of households has probably really amplified rental demand. And that’s probably the best explanation for the increase in rental demand,” says Lawless.
“This smaller household size, when you apply it to a population, means rental demand has actually been amplified, despite the fact that border closures have stemmed the level of rental demand from abroad. .”
Even though the supply of private rentals is under pressure, Martin says social housing has been on a “starvation diet” for more than 30 years.
“[Social housing] has not grown, and it has lagged behind the housing needs of a growing community, whether due to immigration or natural population growth. We have a growing population and part of this population needs affordable rental housing. And we have a private rental sector that doesn’t either.
There was only a 9% growth in the public housing stock between 2006 and 2020, according to a recent working paper from the UNSW City Futures Research Center. This is despite a much larger increase in population (and homelessness) during this period.
The federal government and some state governments have announced policies to build more social housing. But Martin says that may not be enough and governments should explore more help, as well as rent control.
“The increase in social housing cannot come fast enough to cope with [acute rental affordability] problems. So as much more social housing is needed, so much more is needed in the current circumstances.
In the meantime, Lawless says the newly opened borders could add further pressure on housing costs in some areas.
“Potentially, we could see these rental demand pressures amplify. We could see a reversal of this trend towards smaller homes.