Instead of collapsing under Covid, the Australian real estate market flourished – and there is one type of property that is most in demand.
In Australia’s long history, barriers and busts have been an integral part of life in our great southern country.
From the gold rushes of the 1850s to a long list of commodity prices, Australia has long enjoyed the joys that come from a booming economy and the anxiety that comes from the inevitable busts.
When gold was minted in regional NSW and Victoria in the 1850s, small peasant communities thriving ministries became virtually overnight. Australians and immigrants flocked to these cities as everyone wanted to make it rich, with some of their descendants remaining there to this day.
As a result of this rush into the regions, the costs of real estate and goods in these areas increased, as the increase in the number of prospectors and other newcomers completely changed the balance between supply and demand in these once quiet small towns.
Over the next 170 years, this rush into the regions would be repeated over and over again, resulting in largely the same conditions as the regional rush of the gold rush.
Fast-forward to the present and it is clear that Australia is once again gripped by another boom, at least in part created by a large imbalance in supply and demand, this time in the nation’s property market.
When the pandemic first sent Australia to lockdown, it was expected demand for real estate would decrease significantly, with the four major banks warning of a up to 32 percent crash in house prices at the time.
But that would not be the case.
Australia’s pandemic real estate boom
Between a combination of record low interest rates, pandemic-driven factors such as working from home and the desire for more space and various government stimulus programs, demand for real estate actually increased to all-time highs.
As a result of these various factors, such as the pandemic that caused many homeowners to reconsider listing their property, the nation’s housing market is actually in the middle of its own atmosphere of gold rush.
Nationally, the new listing volumes decreased significantly in 2020 and early 2021, which drove the total number of properties on the market to well below the decade average since the pandemic began.
When this limited supply of properties on the market was combined with an enormous level of pandemic-driven demand, the fastest housing prices since the 1980s resulted.
But this is only part of our history.
As you dive deeper into the data, the reasons for the current boom become clearer, as well vulnerabilities that the real estate market may face in the future.
The national figures
After Australia came out of its first round of closures last year, the desire for more space and a backyard suddenly became a necessity for many households.
Things like working from home and space for children to play made many households’ current living in units or apartments unsustainable, as Australians adapted to the new pandemic-affected world.
As a result, demand for detached homes – especially those with reasonable backyards – went through the roof and, as you might expect, the number of homes on the market fell.
According to the supplier of housing price data CoreLogic, in August 2018 there were 153,803 houses for sale nationally. At the end of August this year, there are now only 88,872 houses, a decrease 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 consequences of the election in May 2019 which distorts the information.
The number of units has also experienced a decline of just over 25 percent, but they have not been seen anywhere near the same demand as houses.
But based on what capital you are looking at, the experience of their real estate market can be quite different – especially Melbourne and Perth.
In Melbourne, the number of units on the market has lost the national trend by rising 1.9 percent compared to this time in 2018, no doubt due to the city’s prolonged lockdown.
In Perth, the number of units has only fallen by 2.6 per cent compared with a decrease of 25.4 per cent nationally.
The gold rush jump and a gold rush bust?
As it stands, it seems likely that the ongoing real estate boom will continue, especially when shutdowns are inevitably lifted in NSW and Victoria.
Although the number of first home buyers is declining due to the fact that they are increasingly being priced from the market, the number of investors buying into the market continues to go from strength to strength.
But in the long run, this boom is determined by the strength of demand when the current pandemic-driven factors finally fade.
For some areas such as the NSW north coast, where demand has undoubtedly permanently shifted higher, the impact may be relatively subdued.
But in other regional areas, the same boom cycle that has defined Australia for more than 170 years can be repeated.
As for the long-term prospects for the capitals, the metaphorical “Magic 8 Ball” can currently only answer “Ask again later”.
With uncertainty likely to remain high for the foreseeable future, there are a variety of opportunities on the table from across the spectrum.
There are many predictions and theories, but if the last 18 months have taught us anything, you may be better off with a piece of paper and a dartboard.
Tarric Brooker is a freelance journalist and social commentator @AvidCommentator