How did the pandemic change the property market?

And as CoreLogic’s research director Tim Lawless highlighted in new research, those impacts are continuing to have a material impact on Australians’ living situations and property investment portfolios.

Looking back just four years to March 2020, Lawless remarked that the country has “ been on a roller-coaster ride”.

“Although lockdowns and the uncertainty of vaccination programs are well behind us, the legacy of COVID-19 will be with us for a long time yet,” he added.

Here are seven ways that the pandemic impacted housing, which are continuing to be felt by borrowers, renters, home owners, and property investors today.

1. House values took off

House values have increased by more than double the number of units since March 2020, up 37.9 per cent and 16.5 per cent, respectively.

The substantial difference in growth rates between the two dwelling types is indicative of the pandemic-era preference for space over proximity to central shopping and service areas. This was put into particularly sharp focus in capital cities, where the difference in growth between house and unit values was greatest.

But unit owners shouldn’t despair as COVID-19 kicked off a set of circumstances that saw all dwelling values rise considerably.

CoreLogic reported that national home values surged 32.5 per cent between March 2020 and February 2024, adding roughly $188,000 to the median value of an Australian dwelling.

This growth was most pronounced in Adelaide and regional South Australia, where dwelling values have risen 55.3 per cent and 54.2 per cent since March 2020, respectively. So too did values rise astronomically across Queensland and Western Australia, which also cited figures above 50 per cent.

By contrast, Melbourne saw the smallest uptick in values, with dwellings up 11 per cent since the pandemic began to make its mark in Australia.

2. Shift to solo living

After a significant loosening of vacancy rates, which can largely be attributed to residents such as international students leaving Australia in large numbers, vacancy rates across the country began to tighten, and then essentially never stopped.

The average household size across Australia reduced from 2.55 persons in late 2020 to a historic low of 2.48 people in August 2022. While this may not initially seem like a substantial change, it represents a large number of housemates who have decided to give solo living a try.

According to CoreLogic, these smaller households are estimated to have added approximately 120,000 households to overall housing demand and explains why even when population growth was flat, vacancy rates continued to contract.

3. The lows and highs of monetary policy

With record low interest rates offered in the early days of the pandemic, a record portion of borrowers took advantage of fixed mortgage rates falling below 2 per cent through the middle of 2022, putting pressure on house prices and fuelling speculation that the country would need to grapple with a “fixed rate cliff”.

But as the cash rate was adjusted higher 13 times over the course of 15 months to cool inflation that was in part propelled by rapidly rising house prices, Australian borrowers appeared to navigate higher mortgage rates adequately, with a rise in distressed sales never coming to pass.

Higher interest rates did have a dampening impact on the market, however, with values decreasing or flatlining across early 2023, but with Australians indicating they are dedicated to buying, a severe market dip was avoided and hopes that the cash rate has reached its high have now started to propel interest in the market considerably.

4. Wrangling with inflation

The onset of COVID-19 saw inflation temporarily fall amid lockdowns and plunging confidence, with the Australian government responding quickly with the largest fiscal support during peacetime.

Surging inflation through the second half of 2020 – driven by transport costs; the cost of household furnishings and equipment; and housing inflation including the cost of new buildings, rents; and utilities – forced the RBA to act. And though inflationary pressures seem to be easing, insurance, financial services. and housing costs remain high, while headline inflation isn’t expected to fall within the target range until 2025.

5. Labour market disrupted

Unemployment spiked to 7.6 per cent at the onset of the pandemic, with jobs growth plummeting deeply into negative territory as public-facing businesses closed en masse. Government stimulus served to ease the worst impacts of this situation, with approximately $89 billion in JobKeeper payments to around 4 million workers and 1 million businesses.

But as lockdown measures eased and people once again began to congregate in businesses, economic confidence returned and labour markets tightened significantly. The unemployment rate contracted to 3.4 per cent in October 2022, settling at 4.1 per cent in January 2024, with high employment, jobs growth, and workforce participation credited with keeping borrowers on track with their mortgages.

6. Domestic and international migration up-ended

The pandemic caused a nationwide shake-up in terms of where Australian residents and citizens wanted to be living. International students departed in large numbers, while many expats chose to return. City dwellers left urban centres for outlying areas as well as the regions in search of more space and lifestyle factors, with the flexibility to work from wherever during the strictest lockdowns.

Once borders were reopened, international migration surged, adding to pressure on rentals in particular. The country had roughly 150,000 net permanent arrivals to Australia last year and levels are expected to remain above pre-pandemic numbers for the foreseeable future.

7. Eyes trained on supply

Residential housing completions held relatively flat through the pandemic, even as rental figures tightened and dwelling prices climbed. Supply chain constraints and shortages in materials and labour caused surging construction costs. Coupled with high mortgage costs, many prospective home builders decided to put their plans on hold.

Despite the surge in approvals and commencements off the back of the government’s HomeBuilder program, the number of dwellings completed is still far below pre-pandemic levels. The government has brought together states and territories to commit to building 1.2 million homes over the next five years beginning in July 2024, but the goal remains lofty with ongoing capacity constraints and margin pressures keeping building at low levels.

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