Instead of crashing during Covid, the Australian property market soared, and there is a type of property in higher demand.
In Australia’s long history, booms and busts have been an integral part of life in our Great South Land.
From the gold rush of the 1850s to a long line of commodity price booms, Australia has long enjoyed the joy that comes from a booming economy and the heartache that comes from the inevitable crashes.
When gold was found in the New South Wales and Victoria region in the 1850s, small farming communities became booming mini-cities virtually overnight. Australians and immigrants alike flocked to these cities seeking to get rich, and some of their descendants remained there to this day.
As a result of this rush to the regions, the cost of real estate and property in these areas skyrocketed, as the increase in the number of seekers and other newcomers completely transformed the balance of supply and demand in these areas. small towns that were once quiet.
Over the next 170 years, this race to the regions would repeat itself over and over again, resulting in the same conditions as regional Australia in the gold rush era.
Fast forward to the present and it is clear that Australia is once again hit by another boom created, at least partially, by a large imbalance in supply and demand, this time in the nation’s housing market.
When the pandemic first sent Australia into lockdown, demand for property was expected to drop significantly, with the big four banks warning of as much as 32 percent drop in house prices at the time.
But that was not to be.
Australia’s pandemic housing boom
Between a combination of historically low interest rates, factors driven by the pandemic such as working from home and a desire for more space, and various government stimulus programs, demand for properties actually soared to record highs.
As a result of these various factors, in addition to the pandemic that prompts many homeowners to reconsider their property listings, the nation’s housing market is effectively in the midst of its own gold rush atmosphere.
Nationwide, new listing volumes declined significantly during 2020 and early 2021, bringing the total number of properties on the market well below the decade-long average since the pandemic began.
When this limited supply of properties on the market was combined with huge levels of demand driven by the pandemic, it produced the fastest home price growth since the 1980s.
But this is only part of our story.
When you dig into the data, the reasons for the current boom become clearer, as do the vulnerabilities the real estate market may face in the future.
After Australia emerged from its first round of lockdowns last year, the desire for more space and a backyard suddenly became a necessity for many households.
Things like working from home and a space for children to play made the current distribution of housing into units or apartments unsustainable as Australians adapted to the new world affected by the pandemic.
As a result, the demand for detached homes, especially those with reasonably sized backyards, skyrocketed and, unsurprisingly, the number of these homes on the market plummeted.
According to home price data provider CoreLogic, as of August 2018 there were 153,803 homes for sale nationwide. As of the end of August this year, there are now just 88,872 homes, a drop of more than 42 percent.
Some of you may be wondering why August 2018 was chosen instead of August 2019, this is due to the impact of the May 2019 federal elections that distort the data.
The number of units has also seen a drop of just over 25 percent, but they have not seen anywhere near the same level of demand as houses.
However, depending on which capital city you are looking at, your real estate market experience can be quite different, especially Melbourne and Perth.
In Melbourne, the number of units on the market has bucked the national trend by increasing by 1.9 percent compared to this time in 2018, possibly as a result of the city’s prolonged lockdown.
In Perth, the number of units has only fallen 2.6 percent compared to a 25.4 percent drop nationally.
The rise of the gold rush and the fall of the gold rush?
As it stands, the ongoing housing boom seems likely to continue, particularly once the closures in New South Wales and Victoria are inevitably lifted.
Even as the number of first-time home buyers plummets as they are increasingly excluded from the market, the number of investors buying from the market continues to rise more and more.
But in the long run, the fate of this boom will be decided by the strength of demand once the factors driven by the current pandemic finally fade.
For some areas, such as the north coast of New South Wales, where demand can be said to have increased permanently, the impact could be relatively moderate.
But in other regional areas, the same boom and bust cycle that has defined Australia for more than 170 years may repeat itself once again.
As for the long-term prospects for capitals, the metaphorical ‘Magic 8 Ball’ can currently only answer “Ask again later.”
With the likelihood of uncertainty remaining high for the foreseeable future, there are a multitude of possibilities on the table across the spectrum.
There are many predictions and theories, but if the last 18 months have taught us anything, you may have better luck with a sheet of paper and a dart board.
Tarric Brooker is a freelance journalist and social commentator | @AvidCommentor