In the four years since the pandemic began, home prices around the country have staged a remarkable feat.
From fears of sharp falls through the pandemic, to predictions of steep declines when interest rates began to quickly climb, home prices have defied the expectations of many, surging 39.9% nationally.
Throughout this four-year period, multiple factors have influenced and shifted housing trends, with the housing market cycling through different phases as a result of the pandemic's wide-ranging economic and social impacts.
The supply of properties for sale, population growth, building activity, rental market conditions, interest rates, and interstate and regional migration have all affected home price growth, as well as how it has been distributed Australia-wide since March 2020.
And at the same time these factors have faced a complex interplay of economic policies, consumer behavior, and broader societal changes in response to the pandemic.
In the past year capital city markets have outperformed regional areas (7.64% versus 4.67%), but comparing growth since the pandemic onset, regional home prices have significantly outperformed their capital city counterparts in every state except WA and NT.
This outperformance was largely accumulated throughout the pandemic property price boom.
Regional Queensland (+66.5%) is the highest growth market in the country since the pandemic, followed by regional SA (+66.2%), Adelaide (+64.0%) and Brisbane (+63.1%). These markets have also continued to record strong growth in the current cycle's fresh upturn.
At the very onset of the pandemic, there was a pause in the housing market as lockdown restrictions, closed borders and uncertainty weighed, with many thinking home prices would fall.
In fact, the opposite occurred. Housing demand surged, and along with record low interest rates and limited stock for sale, combined to drive a price boom that saw national prices growing at the third-fastest rate in Australia’s history.
But it was regional areas that experienced the most significant price surge.
Closed international borders and more time at home caused housing preferences to shift. Smaller household sizes, space and lifestyle became a higher priority and proximity to the CBD less so.
As a result, coastal and regional property prices surged alongside outer capital city regions.
Remote work trends, relative affordability and those preference shifts drove strong population growth and housing demand in coastal and regional areas, mostly at the expense of Sydney and Melbourne. In fact, regional areas experienced the biggest net influx since Australian Bureau of Statistics records began in 2001.
Queensland (both metro and regional) in particular experienced unprecedented population flows, with more people moving to Queensland from other states and territories than to anywhere else in the country. The state is home to six of the top 10 highest growth regions since March 2020.
Affordability has played a part in these trends, and cheaper regions have generally seen stronger growth over the past four years. This is partly attributed to Brisbane, Perth, Adelaide, regional Queensland and regional SA recording strong growth post-pandemic, and in the case of Perth, Adelaide and regional SA, avoiding the 2022 price downturn.
Mandurah, Adelaide–North, and Ipswich are also among the highest growth regions over the past year.
Since Covid, Australia’s economy has been challenged by high inflation, and as a result the Reserve Bank of Australia began to increase interest rates in May 2022.
As interest rates began to quickly climb, home prices fell sharply in many markets. National home prices fell 3.84% but falls were larger in Sydney, where priced declined 7.02%.
Interest rates have risen substantially since May 2022 and as a result borrowing costs have increased sharply. This has significantly reduced borrowing capacities, and mortgage payments as a share of disposable income have greatly increased.
However, the housing market has entered an entirely new cycle, with prices now rising again and hitting fresh price peaks in many markets in March 2024 despite the higher interest rate environment.
The rapid price increases during the pandemic and renewed price upturn present challenges for would-be first-time buyers, particularly those with lower incomes, and the significant home price surge over the past four years is bad news for those trying to enter the market.
Housing affordability has worsened, driven by higher mortgage rates and fast growth in home prices, hitting its worst level in at least three decades. At the same time, the deposit hurdle — the most significant hurdle in accessing home ownership — has also increased with rapid price growth, and the time it takes new buyers to save a deposit remains incredibly challenging.
On the other hand, existing homeowners are benefitting from years of growth, accumulating equity gains on their homes. This has insulated them from the higher interest rate environment with many using equity gains to upgrade.
Purchasing activity from these existing owners is one factor that has aided the resilience of homebuying demand over the past year, despite affordability having significantly deteriorated.
Housing demand is also being buoyed by strong population growth, tight rental markets, the pandemic induced desire to live with fewer people, and resilient labour market conditions.
In this new upturn capital city markets have taken the lead.
Net migration has hit record levels since the international borders reopened, and insufficient housing supply coupled with strong demand has offset the higher interest rate environment and deterioration in housing affordability.
It’s clear the supply side of the housing market needs to be able to better adjust to shifts in housing demand.
Against the backdrop of pre-existing housing supply issues, the population is growing at the fastest pace in 72 years, shining a spotlight on the housing shortage that needs to be further addressed.
This surge in net overseas migration has added to rental demand and is likely to add to purchasing demand with a lag. However, strong demand to rent and a shortage of available rentals has caused vacancy rates to plummet. As a result, conditions remain challenging for renters and rental prices are growing strongly.
The tough situation in rental markets around the country has likely incentivised some first-home buyers to purchase their own home sooner than they otherwise would have. Strong growth in rents and increasing property prices have also attracted investors to return to the market.
Higher financing costs, the surge in material costs, labour shortages and an uptick in insolvencies across the building industry have put a dent in the number of new projects put forward and slowed the delivery of new builds, hampering the supply of new housing.
Despite the pickup in population growth, we’re currently completing just over 170,000 new homes a year, which is below the prior decade average, and approvals have fallen to the lowest level since 2009, cementing expectations that the current housing shortage is likely set to worsen as population growth outpaces development activity.
With renters facing extremely low availability of rentals and buyers facing the worst affordability in at least three decades, it’s clear we’re not building enough homes.
The good news is governments have recognised the need for more housing and encouragingly are focused on solutions to address housing shortages.
